Income Tax: Key Limits and Penalties for Cash Transactions in Savings and Current Accounts

Income Tax: The Income Tax Department of India has established specific rules and regulations regarding cash deposits and withdrawals in both savings and current accounts. These rules aim to curb illegal financial activities such as money laundering and tax evasion. Here’s a breakdown of the key regulations you need to be aware of:

Cash Deposit Limits

For Savings Accounts:

• Threshold: Deposits exceeding Rs 10 lakh in a financial year.
• Action: Banks must report these transactions to the Income Tax Department.

For Current Accounts:

• Threshold: Deposits exceeding Rs 50 lakh in a financial year.
• Action: Similar reporting requirements apply.

These measures ensure close monitoring of large cash transactions to prevent misuse of financial systems.

Cash Withdrawal Rules: Section 194N

The Income Tax Act stipulates Tax Deducted at Source (TDS) on cash withdrawals:

• Savings Account Withdrawals:
• Withdrawals over Rs 1 crore in a financial year will attract a 2% TDS.
• If the account holder has not filed their Income Tax Return (ITR) for the last three years, withdrawals over Rs 20 lakh will incur a 2% TDS, and a 5% TDS on withdrawals exceeding Rs 1 crore.

Penalty for Cash Transactions: Section 269ST

• Limit: Cash deposits of Rs 2 lakh or more in a single financial year.
• Penalty: A penalty will be imposed for exceeding this limit. However, this does not apply to cash withdrawals from the bank.

These regulations are designed to promote transparency and accountability in financial transactions, reducing the scope for illegal activities. It is essential for individuals and businesses to be aware of these rules to avoid penalties and ensure compliance with the Income Tax Department's requirements.

TDS as Credit

The TDS deducted under Section 194N is not considered income. However, it can be used as credit while filing your ITR, making it important for taxpayers to keep track of such deductions.

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By following these guidelines, individuals can manage their finances effectively while staying compliant with tax regulations.

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