How Much Cash Can You Deposit In Savings Account Without Attracting Income Tax Notice?

How much money can I safely deposit in my savings account before the taxman comes knocking? Such a question would ring in your head if you are someone who prefers to deal in cash or, your work probably involves frequent cash dealings, or you could be someone who just sold a car and received a good chunk of money in hand.

The short answer? Keep it under Rs 10 lakh in total per financial year, and you are likely in the clear. But as always, the matter with tax laws is a bit more layered than that.

So, what is the Rs 10 lakh rule?

The Income Tax Department keeps an eye on high-value transactions. And one of the red flags that can trigger scrutiny is when your total cash deposits across all your savings accounts cross Rs 10 lakh in a single financial year (which is April to March).

This does not mean Rs 10 lakh per account. It’s Rs 10 lakh per person across all your savings accounts. So, even if you split your deposits between three banks, the total will still be counted.

Banks and financial institutions are mandated, under Section 114B of the Income Tax Act, to report such deposits to the Income Tax Department. Once that’s done, there’s a good chance the IT system will ping you with a notice asking for details.

What about daily deposits?

Technically, there’s no explicit cap on how much you can deposit in a single day. But there is a practical threshold.

If you deposit more than Rs 50,000 in cash on a single day, the bank will ask for your PAN. If it’s not on record, you’ll need to submit Form 60 or 61.

Now, while Rs 1 lakh per day is usually fine, regularly depositing above that can start raising eyebrows. Cross Rs 2.5 lakh in one go, especially if you are doing it repeatedly, and that’s likely to be flagged as a “large deposit”, particularly if you can’t justify the source.

What happens if you go over the Rs 10 lakh limit?

Let’s say you have deposited Rs 12 lakh in cash over the year, thinking it’s spread across accounts so you’re safe. Here’s what can happen:

• Your bank will report it. Whether or not anything is wrong, this triggers an alert.
• You may get a notice. The Income Tax Department could send you an email or SMS asking for details about the source of this cash.
• You’ll need to explain. If you can show where the money came from, like selling an asset, or savings from your business income, you are fine.

If you can’t? That’s where things could get serious. The tax department can initiate proceedings under Section 68 of the Income Tax Act. If they decide the cash is unexplained income, they can slap a 60 per cent tax, 25 per cent surcharge, and 4 per cent cess on it.

Also, don’t ignore Section 269ST

This section mandates that an individual can’t receive Rs 2 lakh or more in cash in a single transaction or series of linked transactions on one day, from a single person.

This is separate from deposits, meaning it is about how much you are receiving in cash in the first place.

So, if someone pays you Rs 2.1 lakh in cash for something, even something legit like rent or a car could be flagged. Typically, the penalty is 100 per cent of the amount received.

What about cash withdrawals?

The tax officials don’t just monitor deposits, they also track withdrawals. Under Section 194N, cash withdrawals over certain thresholds from bank accounts attract TDS (Tax Deducted at Source).

If you have filed your tax returns regularly, you will see a 2 per cent TDS on withdrawals over Rs 1 crore in a financial year.

If you have not filed ITRs for the last 3 years, the bar is lower:

• 2 per cent TDS on withdrawals above Rs 20 lakh
• 5 per cent TDS if you withdraw more than Rs 1 crore

This TDS is not a final tax; it’s adjustable when you file your income tax returns.

What should you do if you get a tax notice?

Since notices for high-value transactions are not unusual, there is no need to panic if you get a notice from tax officials. Getting one doesn’t mean you’re in trouble unless you have something to hide.

Here’s how to respond:

First and foremost, collect your proof, such as bank statements, sale agreements, investment redemption slips, gift deeds, and whatever supports your claim.

Next, it is important to respond within the deadline, which is usually 30 days.

If it gets too complex or you are unsure, it is best to consult a tax advisor.

Source: outlookmoney.com