Income tax rules: Learn the income tax rules for savings accounts and how much cash you can deposit without any scrutiny. Learn about daily cash transaction limits, high-value transaction reporting requirements and how to respond to income tax notices.
Savings Account: Have you ever wondered how much cash you can keep in your savings account without drawing an income tax notice? This is a common concern for many individuals. As per income tax rules, the total cash deposits or withdrawals in a savings account during a financial year should not exceed Rs 10 lakh. Exceeding this limit can lead to an income tax department investigation.
Daily cash transaction limit
Another question that is often raised is the limit of cash transactions in a day. Under section 269ST of the Income Tax Act, a person cannot withdraw more than Rs 2 lakh in cash in a single transaction or in connected transactions in a single day. If the total cash deposits in all your savings accounts exceed Rs 10 lakh in a financial year, banks have to report it to the income tax department, even if the deposits are spread across multiple accounts.
High-value transactions: What happens if you exceed the limit?
If you deposit more than Rs 10 lakh in cash during a financial year, it will be considered a high-value transaction. Under Section 114B of the Income Tax Act, banks and financial institutions must inform the Income Tax Department about such deposits. Additionally, if you deposit more than Rs 50,000 in cash in a single day, you must provide your PAN number. If you don’t have a PAN, you will need to submit Form 60/61 as an alternative.
How to respond to Income Tax notices related to high-value transactions
If you receive an Income Tax notice for high-value transactions, you must have adequate evidence to support the source of the funds. This evidence can include bank statements, investment records, or documents related to inheritance. If you’re unsure or concerned about the source of your cash, it’s advisable to consult a tax advisor for guidance.
Key takeaways:
- Cash deposits or withdrawals in a savings account should not exceed Rs 10 lakh in a financial year to avoid Income Tax scrutiny.
- Daily cash transactions of Rs 2 lakh or more are not allowed under Section 269ST.
- High-value transactions exceeding Rs 10 lakh in a year must be reported to the Income Tax Department.
- If you make a cash deposit of Rs 50,000 or more in a day, PAN is required.
- Responding to Income Tax notices requires providing sufficient documentation to explain the source of funds.
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