Managing a savings account involves more than just deposits and withdrawals. The Income Tax Department of India has set specific rules regarding cash transactions to ensure transparency, curb tax evasion, and promote digital transactions. These changes directly impact account holders, requiring them to be mindful of their banking activities.
New Income Tax Rules
| Topic | Details |
|---|---|
| Daily Cash Deposit Limit | Above ₹50,000, PAN is required |
| Annual Cash Deposit Limit | Above ₹10 lakh, reported to the IT Department |
| TDS on Cash Withdrawals (ITR Filers) | 2% on withdrawals above ₹1 crore per year |
| TDS on Cash Withdrawals (Non-ITR Filers) | 2% on withdrawals above ₹20 lakh, 5% on withdrawals above ₹1 crore |
| Digital Transactions Encouraged | To reduce cash dealings and increase transparency |
Understanding the latest income tax rules on savings account deposit and withdrawal limits is crucial to managing your finances effectively. By staying informed and using digital transactions, you can ensure compliance while minimizing tax liabilities.
Why Have These Rules Been Implemented?
The Indian government has been actively working to curb black money, prevent tax evasion, and promote digital transactions. These regulations help the authorities track large transactions and ensure that income is correctly reported.
Here’s why these rules matter:
- Reduces tax evasion: Large cash transactions often go unreported, leading to tax fraud.
- Encourages digital payments: The government is pushing for digital transactions to create a transparent economy.
- Prevents money laundering: Tracking large cash movements helps prevent illegal financial activities.
see also: Post Office PPF Scheme The Best Investment for Secure Returns
Cash Deposit Limits in Savings Accounts
The government has imposed limits on cash deposits to monitor financial transactions efficiently.
1. PAN Requirement for Cash Deposits
If you deposit more than ₹50,000 in cash in a single day into your savings account, you must provide your Permanent Account Number (PAN) to the bank.
2. Annual Reporting of Cash Deposits
If your total cash deposits exceed ₹10 lakh in a financial year, your bank will report the transaction to the Income Tax Department under the Statement of Financial Transactions (SFT) framework.
Example:
- If you deposit ₹2 lakh per month in cash, your total deposit for the year will be ₹24 lakh. This will be flagged for review by the IT Department.
Cash Withdrawal Limits and TDS Rules
To discourage excessive cash withdrawals, the government has introduced TDS (Tax Deducted at Source) rules.
1. TDS on Cash Withdrawals for ITR Filers
If you filed your ITR in the past three years, you will face 2% TDS on cash withdrawals exceeding ₹1 crore per financial year.
2. TDS on Cash Withdrawals for Non-ITR Filers
If you did not file an ITR in the last three years:
- A 2% TDS applies if withdrawals exceed ₹20 lakh per financial year.
- A 5% TDS applies if withdrawals exceed ₹1 crore per financial year.
Example:
- If you withdraw ₹25 lakh and haven’t filed ITR, 2% TDS (₹50,000) will be deducted.
- If you withdraw ₹1.2 crore and haven’t filed ITR, 5% TDS (₹6 lakh) will be deducted on amounts over ₹1 crore.
How to Stay Compliant With These Rules?
To avoid penalties or unnecessary scrutiny, follow these best practices:
1. Use Digital Transactions
Instead of cash, prefer:
- UPI, NEFT, RTGS, or IMPS transfers for large payments.
- Credit or debit cards for purchases.
- Net banking for bill payments.
2. Maintain Proper Records
Keep track of:
- Bank statements
- PAN-linked transactions
- Receipts for large deposits/withdrawals
3. File Your Income Tax Returns (ITR)
Regularly filing your ITR can help you:
- Avoid higher TDS deductions on withdrawals.
- Justify your income sources in case of an audit.
see also: How to Save Money Effectively in 2025 Smart Strategies for Financial Growth
New Income Tax Rules FAQs
1. What happens if I deposit more than ₹10 lakh in cash?
Your bank will report the transaction to the Income Tax Department. If your income doesn’t justify the deposits, you may be asked to explain the source.
2. Can I deposit ₹2 lakh cash multiple times to avoid reporting?
No. Even if you split deposits into smaller amounts, banks still track aggregate cash deposits over a financial year.
3. How can I avoid TDS on cash withdrawals?
To avoid high TDS, file your ITR regularly and limit cash withdrawals by using digital payment methods.
4. Will deposits via cheque or online transfers be reported?
No. These limits apply only to cash transactions. Digital and cheque deposits are not subject to these restrictions.
5. Are businesses subject to different limits?
Yes. Businesses and current accounts have different limits and reporting requirements. Consult your tax advisor for specific details.
