Cash Transaction Limit in Savings Account as Per Income Tax

Being a savings account holder, one is bound to know that there are certain cash transaction limits, beyond which a person would not be able to operate, according to the rules specified in the Income Tax Act. The laying down of these limits has two major purposes, to rein in the propensity of black money and to increase the habit of making digital payments. This article will take a closer look into cash transaction limits for savings accounts, the penalty provided for non-compliance with such limits, and why such limits have been provided under the Income Tax Act.

Savings Account Cash Deposit Limits

Cash deposit refers to the addition of money into your savings account in the form of cash, cheques or using an ATM. Even after depositing, you can withdraw this money, and it will still fall under a cash deposit transaction.

1. Annual Limit

Under the Income Tax Act, the cash deposit limit in savings accounts is restricted to Rs. 10 lakh per financial year. The law governing this is Section 114B of the Income Tax Act, 1962. Banks and other financial institutions are to report deposits of a larger amount of cash exceeding the limit to the Income Tax Department.

2. Daily Limit

The daily limit for cash deposits in the savings account is Rs. 1 lakh. You can deposit up to Rs. 2.5 lakh in a day if the frequency of such transactions is less. You need to stay within the annual limit of Rs. 10 lakh to avoid potential penalties.

The limit for a single transaction of depositing cash in a savings account is Rs. 50,000. If the amount to be deposited is higher than this, you need to submit your PAN details. You may submit Form 60 or Form 61 if you do not have a PAN card. It is done for better clarity and helps track bigger cash dealings.

Implications of Crossing Cash Deposit Limits

If you have crossed the limits set by the Income Tax department, here's what you need to know:

• Reporting Requirements: Banks have to report deposits of more than Rs. 2.5 lakh in a day in the case of a general account and Rs. 5 lakh in the case of senior citizens to the Income Tax Department. Deposits of such a huge amount are considered major ones and may be enquired further.
• Income Verification: In case you have deposited more than the limit amount, the department will send you an e-mail or SMS to furnish the source details of such deposits.
• Documentation: For any deposit over Rs. 50,000 PAN card details need to be produced before the bank. Without this information, further scrutiny may arise.
• Tax Implications: If one fails to provide necessary explanations about the source of their deposits, there are chances that the Income Tax Department may send notices to people under Section 68 of the Income Tax Act. On the unexplained income, a substantial amount of tax liability may arise, which includes 60% tax, a 25% surcharge, and a 4% cess if the origin of funds is not checked.
• Penalties: Receiving Rs. 2 lakh or more as cash deposits in a financial year without adequate documentation can draw penalties.

Savings Account Cash Withdrawal Limits

While there are no specific withdrawal limits imposed by the Income Tax, Cash withdrawals made from savings accounts can attract certain limits depending on the policies adopted by the bank. Here's an idea of the main limits and regulations applicable to cash withdrawals from savings accounts:

1. Daily Withdrawal Limit

The daily cash withdrawal limit from a savings account generally ranges from Rs. 10,000 to Rs. 50,000, depending upon your bank and the account type you hold with it. Some banks do offer a higher limit on premium accounts.

2. Annual Cash Withdrawal Limit

While there is no direct cap on cash withdrawals per year, large cash amounts withdrawn are kept under observation to avoid misuse. More frequency of large cash withdrawals or large cash amounts withdrawn will bound your transactions under income tax radar, more precisely when the withdrawal crosses the common threshold limit for checking.

Implications of Crossing Cash Withdrawal Limits

• Reporting Obligations: Banks are required to report cash withdrawals beyond Rs. 20 lakh in aggregate during a financial year. The principle behind the rule is that every big transaction needs to be tracked and they need to be justified by the income returns filed by the account holder.
• TDS: If your aggregate cash withdrawals from all accounts maintained with a bank exceed Rs. 20 lakh during a financial year, it may deduct TDS from the bank account. The rate of TDS depends on whether you have filed your income tax returns in the past three years and quoted your PAN details. In a nutshell:
  • If No Returns Filed: TDS at 2% for cash withdrawals over Rs. 20 lakh but up to Rs.1 crore. For the amount above Rs. 1 crore, the TDS rate will be 5%.
  • If Returns Filed: On amounts exceeding Rs.1 crore, TDS at 2% is applicable.
  • If PAN Not Submitted: On cash withdrawal over Rs. 20 lakh, TDS at 20%.

What is the Purpose of these Limitations?

These limits are imposed by the Income Tax Act to avoid the accumulation of black money and to encourage digital payments. Large accumulations of black money could have detrimental consequences on the economy since huge amounts of money may be syphoned off for illicit purposes or money laundering. Thus, the government has to establish these limits:

1. Prevent individuals from making huge cash transactions that normally characterise illicit activities or whose end is to evade tax.
2. Encouraging them to use more digital modes of payment, which the taxation departments could keep track of.
3. Reduces the probability of money laundering, fraud or financing for illicit purposes.
4. A cashless economy brings transparency and accountability into the mainstream.

Conclusion

Briefly, the limitations set forth by the Income Tax Act, of 1961 on cash transactions are to avoid the accumulation of black money and to encourage digital payments. A better understanding of the limits and rules prescribed under the Income Tax Act allows you to plan your cash transactions and make optimum use of digital modes of payment. Remember, compliance with such limits is a must, and non-compliance attracts penalties.