Income Tax Act 2025: Income Tax Department will send notice if you deposit more cash than the limit in your savings account.

The IT Act 2025 requires banks and financial institutions to report transactions exceeding ₹10 lakh (savings accounts) or ₹50 lakh (current accounts) to the Income Tax Department. This focuses on monitoring large cash transactions.

Income Tax Act 2025: Under the Income Tax Act 2025, there is a fixed limit on cash deposits in savings accounts. This limit is the amount that an individual can deposit within a certain period of time. This rule is designed to monitor cash transactions to prevent money laundering, tax evasion, and other illegal activities. Individuals depositing cash of ₹10 lakh or more in a savings account in a financial year must inform the Income Tax Department. For current accounts, this limit is ₹50 lakh.

Banks’ Responsibility

Although these deposits are not immediately taxable, banks and financial institutions are required to report transactions exceeding ₹10 lakh (savings account) or ₹50 lakh (current account) to the Income Tax Department. This focuses on keeping an eye on large cash transactions.

Section 194N: Rules on Cash Withdrawals

Section 194N of the Income Tax Act provides for Tax Deducted at Source (TDS) on cash withdrawals. If an individual withdraws cash exceeding ₹1 crore in a financial year, a 2% TDS is deducted. For those who have not filed their Income Tax Returns (ITRs) for the past three years, a 2% TDS is applicable on withdrawals exceeding ₹20 lakh, and a 5% TDS is applicable on withdrawals exceeding ₹1 crore. This TDS is not considered income but can be used as a credit when filing their ITR.

Section 269ST: Penalty on Cash Transactions

According to Section 269ST, a penalty is applicable if an individual accepts cash exceeding ₹2 lakh or more in a single transaction or in a single year. However, this penalty does not apply to cash withdrawals from banks. However, TDS is deducted if the withdrawal limit is exceeded.

Sections 269SS and 269T: Rules on Cash Loans

Sections 269SS and 269T relate to cash loans. Individuals who take or repay a cash loan exceeding ₹20,000 may be subject to a penalty of the same amount. Understanding the Income Tax rules is essential to comply with these rules. For business owners, if the deposits match the business turnover declared in their income tax returns, especially under Sections 44AD/44ADA, there is no penalty. However, if the deposits are unrelated to the business, the Income Tax Department may investigate.

Section 68: Proving the Source of Income

If an individual is unable to prove their source of income, the Income Tax Department may issue a notice under Section 68. In such a case, 60% tax, a 25% surcharge, and a 4% cess may be levied on the unverified income. This can result in a substantial tax burden.

How are cash deposits taxed?

Any cash deposit exceeding ₹10 lakh in a savings account or ₹50 lakh in a current account requires reporting to the Income Tax Department. These deposits are not directly taxable, but if the source of income is unclear, they may be subject to scrutiny. Failure to comply with these rules could result in penalties or additional taxes.

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