Understanding the limits for cash transactions and deposits in bank accounts is essential to ensure compliance with Indian Income Tax laws. These rules help monitor large financial activities and prevent tax evasion. Below is a simplified overview of the key provisions:
Cash Deposit Limit in Savings Accounts
The maximum cash deposit limit in savings accounts is ₹10 lakh in a financial year.
For current accounts, the limit is higher at ₹50 lakh annually.
Tax Deducted at Source (TDS) on Cash Withdrawals
Under Section 194N:
Withdrawals exceeding ₹1 crore in a financial year are subject to a 2% TDS.
For individuals who haven’t filed their income tax returns for the past three years:
2% TDS applies to cash withdrawals above ₹20 lakh.
5% TDS applies to amounts withdrawn over ₹1 crore.
Cash Transaction Restrictions
Section 269ST: Any cash transaction above ₹2 lakh in a single day is prohibited.
Sections 269SS & 269T: Cash loans exceeding ₹20,000 can attract penalties.
Tax on Large Cash Deposits
Cash deposits must align with a person’s declared income or business turnover. Unexplained deposits may be taxed at 60%, plus additional penalties and surcharges.
Other Key Cash Limits
Current Accounts: Banks set varying monthly cash deposit limits, ranging from ₹5 lakh to ₹100 crore.
Gifts: Cash gifts under ₹50,000 in a financial year are exempt from tax. Gifts from immediate relatives are entirely tax-free, regardless of the amount.
Real Estate: Any cash payment for property transactions above ₹20,000 is strictly prohibited.
Fixed Deposits and Credit Card Transactions
Credit Card Bill Payments: Cash payments are subject to daily and transaction limits, generally around ₹50,000.
Fixed Deposits: Tax-saving fixed deposits allow investments up to ₹1.5 lakh annually for tax deductions under Section 80C.
Real Estate Cash Restrictions
Cash transactions above ₹20,000 for real estate purchases are illegal, and violators face strict penalties.
Stay Updated
Following these guidelines ensures that your financial activities are compliant with income tax laws, reducing the risk of penalties and scrutiny.
