Tax implications for Current Account holders Typically, businesses tend to transact much more thanindividuals. Financial transactions include cashdeposits, cash withdrawals and transfers. However, aSavings Account usually has a cap on the number oftransactions, as well as the value. Hence, it isunsuitable for businesses – especially, as they scale.
This is where a Current Account comes with theadvantage of unlimited transactions and a larger cashdeposit limit. This account also enables higheroverdraft facilities and superior payment solutions,among other benefits. Entities such as soleproprietorships, LLPs and private and publiccompanies, can open a Current Account.
TDS on cash withdrawals from Current Accounts
There is no income tax on Current Accounts. However,under Section 194N of the Income Tax Act, banks arerequired to deduct tax at source when the aggregatesum of cash withdrawals exceeds a certain limit. If youhave more than one Current Account in a bank, thenthe aggregate cash withdrawal is considered. Thestatus of Income Tax Returns (ITR) filing also plays arole. Withholding taxes on Current Accounttransactions can invite penalties to the bank; hence,this is an important step.
Here’s a look of taxable withdrawals from CurrentAccounts that attract TDS:
1. Aggregate cash withdrawals up to 20 lakh
There is no TDS on aggregate cash withdrawals of upto 20 lakh if ITR has been filed for any of the last threeyears, and also if it has not been filed for all of the lastthree years.
2. Aggregate cash withdrawals between 20 lakh and 1 crore
- There is no TDS if ITR has been filed for any of the last three years.
- 2% of TDS applies if ITR has not been filed for all of the last three years.
3. Aggregate cash withdrawals above 1 crore
- 2% of TDS applies if ITR has been filed for any of the last three years.
- 5% of TDS applies if the ITR has not been filedfor all of the last three years.
What is the cash deposit limit in CurrentAccount per day?
The cash deposit limit of a Current Account is theupper cap on the value of account funding allowedwithin 24 hours.
Cash deposit policies are governed by several factorsas follows:
- The Reserve Bank of India guidelines mandate thatbanks must report cash deposits exceeding ₹50lakh to the Income Tax department. However, thisdoes not mean that account holders cannot deposita figure over this amount. It just means that cashdeposits, account liquidity, cash handling andaccount funding methods may attract scrutiny bythe IT department.
- Banks usually keep a cap on the Current Accountdeposit limit per month rather than the CurrentAccount cash deposit limit per year or day.
- Banks may set the monthly free Current Accountcash deposit limit between 2 lakh and 3 crore asper the needs of businesses. However, premiumbanking services attract cash deposit fees forlarger cash deposit limits.
How is the Cash Deposited in a Bank Account Taxed?
As per the provisions outlined in the Indian Income Tax Act, there are specific regulations concerning cash transactions, including significant cash deposits. Individuals who deposit cash into a savings account and accumulate INR 10 lakh or more during a fiscal year are required to notify the tax authorities. For those holding current accounts, this reporting threshold is elevated to INR 50 lakh. It’s essential to recognize that although these deposits aren’t subject to immediate taxation, financial institutions are obligated to report transactions that exceed these limits to the Income Tax Department.
Turning to cash withdrawals, the rules for TDS are outlined in Section 194N of the Indian Income Tax Act. The law dictates that withdrawals exceeding INR 1 crore within a fiscal year incur a 2% TDS. For individuals who haven’t filed their income tax returns for the past three years, a 2% TDS applies to cash withdrawals exceeding INR 20 lakh, while a 5% TDS applies to amounts withdrawn above INR 1 crore in the same financial year.
It’s noteworthy that the TDS deducted under Section 194N isn’t categorized as income but can be utilized as a credit when filing ITR.
44AD/44ADA
In a business context, deposits that align with the business turnover declared in the income tax return, particularly those under Sections 44AD/44ADA, are exempt from penalties. Conversely, deposits that are unrelated to business operations might attract the attention of the tax department.
The Income Tax Department holds the authority to issue notices under Section 68 of the Income Tax Act when individuals are unable to authenticate the source of their income. In cases where the income source remains unverified, a 60% tax, along with a 25% surcharge and a 4% cess, is imposed.
Additionally, Section 269ST of the Income Tax Act stipulates penalties for individuals who receive INR 2 lakh or more in cash within a specific year or transaction. However, this penalty does not apply to bank withdrawals, although TDS deductions are applicable to withdrawals that surpass the established limits.
The regulations set forth in Sections 269SS and 269T of the Income Tax Act pertain to cash loans. Accepting or repaying cash loans exceeding INR 20,000 in a given year might lead to penalties equivalent to the cash loan amount.
It’s prudent to stay updated with the latest income tax regulations and guidelines to ensure compliance and proper handling of cash transactions within the framework of the law.
Important FAQ
What is the limit of cash deposit in current account as per Income Tax Act?
– If you have a current account, the limit is Rs 50 lakh.
Can I deposit more than 50000 cash in current account?
On depositing more than Rs.50,000 you are required to provide your PAN card details but you can make a declaration about the particulars of the deposit in Form 60 in case you don’t have a PAN card. These measures are put in action by the Income Tax department to keep a check on the cash deposits being made.
Can I deposit 5 lakhs cash in my current account?
Cash Deposits in Bank Accounts
The cash deposit limit, in the case of Savings Accounts, is Rs 10 lakh. If a person deposits more than Rs 10 lakh in a financial year, then the Bank will report it. However, for Current Accounts, the limit is Rs 50 lakh.
How much cash deposit is tax-free?
Depositing an amount exceeding ₹10 lakh in a single or combined financial year attracts attention from the Income Tax Department (ITD) in India. Any cash deposit surpassing ₹10 lakh in a financial year (April 01 to March 31) across all your savings accounts is duly reported to the ITD.
Is there any TDS on cash deposit in current account?
Hence, this is a tax-free account where no income tax on the Current Account is deducted. However, there are some taxable events in Current Account management. For instance, Tax Deducted at Source (TDS) applies once cash withdrawals cross the threshold of the Current Account tax limit in India.
Is there a limit on current accounts?
There is usually no limit to the number of providers you can have a current account with. However, there may be a limit to the number of accounts you can have with a single provider, so it’s best to check any terms and conditions before you apply.
How to show cash deposit in ITR?
Ans: The cash deposited should be shown under “Cash out of earlier income or savings” (B. 1). In remarks column, the details regarding the declaration should be mentioned.
How to justify cash deposits?
Here are some examples of how to explain a cash deposit:
- Pay stubs or invoices.
- Report of sale.
- Copy of marriage license.
- Signed and dated copy of note for any loan you provided and proof you lent the money.
- Gift letter signed and dated by the donor and receiver.
- Letter of explanation from a licensed attorney.
What is the limit of cash deposit to avoid income tax notice?
Cash deposits or withdrawals exceeding Rs 10 lakh (1 million) in a year in a savings account (except current accounts and fixed deposits) require reporting to the Income Tax department. Banks and post offices are responsible for reporting such transactions.