Cash Deposit Limit in Saving Account as Per Income Tax (2024)

In today’s dynamic world of finance, understanding the tax implications and the limits set by the Income Tax Department are extremely important for several reasons. Knowing tax regulations and limits on various aspects helps individuals comply with the law, plan their taxes efficiently, and manage finances effectively. Awareness of limits also helps you avoid unexpected penalties and charges related to tax compliance. This article aims to provide details on cash deposit limits in a savings account as per Income Tax. 

The cash deposit limit in the bank as per the Income Tax Act of 1961

As per the Income Tax Act of 1961, there is no specific cash deposit limit in a savings account. However, cash deposited in a savings account above a certain limit can attract scrutiny from the Income Tax Authorities under various provisions of the Income Tax Act that impose restrictions on cash transactions. 

In the context of Income Tax, the cash deposit limit refers to the maximum amount of cash that you can deposit in your bank account within a specific period without falling under the lens of Tax Authorities. The Income Tax Department has set limits on cash deposits, cash withdrawals, and other money transactions to curb tax evasion, money laundering, corruption, and other illegal financial activities. 

The Reserve Bank of India has notified the banks and financial institutions to keep a close watch on cash transactions under its anti-money laundering (AML) and know-your-customer (KYC) guidelines. As per the guidelines, banks and financial institutions are required to report cash deposits and cash withdrawals for INR 10 lakhs and above in a savings account during the financial year. Transactions above this threshold are subjected to income tax scrutiny by the Central Board of Direct Taxes (CBDT). It becomes important for the account holder to explain the nature of transactions. The banks are also required to maintain separate records of such transactions.

Also read: The power of a savings account: your gateway to financial freedom

Tax implications on cash deposits 

Bank cash deposit limits are already set by the Reserve Bank of India, and the amount deposited to savings accounts above this limit is scrutinised by the Income Tax Department. If the account holder fails to authenticate the source of funds, Income Tax Authorities may serve them with a tax notice. These transactions may attract penalties from the Central Board of Direct Taxes (CBDT). 

Also read: 5 benefits of having a savings account

Tax implications on cash withdrawals 

The same rule of tax scrutiny applies to cash withdrawals from savings accounts/ current accounts. However, Tax Deducted at Source (TDS) applies to cash withdrawals under Section 194N of the Income Tax Act, 1961. As per the provisions of Section 194N, banks and financial institutions are required to deduct TDS while making cash payments to any person in the following cases:

1. 2% TDS deduction on cash withdrawals exceeding INR 1 Crore if the person withdrawing the money has filed the Income Tax Return for all or any three previous assessment years.

2. There is a 2% TDS deduction on cash withdrawals exceeding INR 20 lakhs and 5% TDS on cash withdrawals exceeding INR 1 Crore if the person withdrawing the money has not filed an Income Tax Return for any of the previous assessment years.

In conclusion, everyone needs to understand the various limits applicable under the Income Tax Act of 1961 to plan taxes efficiently and stay compliant with tax law. Knowledge of limits on cash transactions not only helps you adhere to the Income Tax Laws but also helps you do financial planning effectively. It also reduces the risk of facing legal actions and penalties. These limits are set by the Income Tax Department to monitor financial transactions and curb illicit money transactions for the country's financial and economic stability.