In order to fulfill their banking needs, people, including salaried individuals, commonly open savings accounts to safely store their money and earn interest. It’s important to be mindful of the prescribed thresholds for cash deposits and withdrawals to avoid coming under the scrutiny of tax authorities. Transactions exceeding certain limits are required to be reported, including cash deposits and withdrawals of Rs 10 lakh or more in a financial year. Additionally, various other transactions, such as credit card payments and investments, are also subject to reporting requirements. It’s crucial to be aware of these regulations before conducting any banking transactions to ensure compliance and avoid being flagged for reporting under Rule 114E.
In a bid to meet their banking needs, people from all walks of life — including the salaried persons — are required to have at least one savings account, while many also keep multiple accounts for various reasons. People with a steady income usually open a savings bank account because that is a place where they can store their money safely while earning some interest on the balance.
However, while there is usually no limit on the amount of money to be deposited in a savings account, have you ever wondered, how much money can you put into a savings account and also withdraw from it in a financial year to stay outside the taxman’s radar?
Tax experts say that in a bid to curb black money and widen the tax base, the government has made it mandatory for banks, corporates, post offices and NBFCs, among others, to furnish the Statement of Financial Reporting (SFT), when transactions in a savings account exceed the prescribed threshold. These transactions are in respect of cash deposits/ withdrawals, investment in shares/ debentures/ time deposits/ mutual funds, credit card expenses, purchase of foreign exchange, transaction in immovable property etc.
“The tax laws require banking companies to report cash deposits and withdrawals of Rs 10 lakh or more in bank accounts, other than current or time deposit accounts, on a regular basis during the year to the tax department as a part of SFT. This limit is seen in aggregate for cash deposits of Rs 10 lakh or more in a financial year, in one or more accounts (other than a current account and time deposit) of the tax payer. This enables the tax officer to make further inquiry on the source of funds, nature of receipt and ascertain whether appropriate taxes have been paid on the same or not,” says Aarti Raote, Partner, Deloitte India.
Thus, as cash deposits and withdrawals of Rs 10 lakh or more in a bank account in a financial year are required to be reported to the tax authorities, you need to be careful if you are exceeding the prescribed threshold. This limit is Rs 50 lakh and more in case of current accounts. However, apart from cash transactions, there are some other transactions also which you need to be aware of.
Kapil Rana, Founder & Chairman, HostBooks Ltd, says, “A person should consider the nature and value of transactions that fall under reporting requirement of rules 114E of the Income Tax Act, to stay outside the radar of tax authorities, when withdrawing or depositing any amount from a saving bank account in a financial year. Therefore, we should be aware of the reportable transactions.”
According to Rana, the following transactions need to be reported under Rule 114E of the Income Tax Rules, 1962 (referred to as Statement of Financial Transaction):
A. Every banking company or a co-operative bank, providing bank account facility and to which Banking Regulation Act, 1949 is applied, needs to report the following transactions:
# Cash deposit aggregating to Rs 10 lakh or more in a financial year in one or more accounts (other than a current account and time deposit) of a person.
# Payment in cash aggregating to Rs 10 lakh or more in a financial year for the purchase of bank drafts/ pay order/ banker’s cheque/ prepaid instruments issued by the Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007.
B. Credit card issuing Banking Company or a Co-operative Bank to which Banking Regulation Act, 1949 applies or any other company or institution, shall need to report the following transactions.
# Payment in cash aggregating to Rs 1 lakh or more in a financial year against the bill raised in respect of one or more credit card issued.
# Payment by any mode other than cash aggregating to Rs 10 lakh or more in a financial year against the bill raised in respect of one or more credit card issued.
C. Company or institution issuing bonds or debentures needs to report the receipt from any person of an amount aggregating to Rs 10 lakh or more in a financial year for acquiring bonds or debentures issued by the company or institution (except the amount received on account of renewal of the bond or debenture issued by the company).
D. Company which is issuing shares needs to report receipt from any person of an amount aggregating to Rs 10 lakh or more in a financial year for acquiring shares issued by the company.
E. Company listed on the recognized stock exchange and purchasing its own securities under section 68 of the Companies Act, 2013 needs to report buyback of shares of an amount aggregating to Rs 10 lakh or more in a financial year from any person (except shares bought in the open market).
F. Trustee of a Mutual Fund or other person who manages the affairs of the Mutual Fund needs to report the receipt from any person of an amount aggregating to Rs 10 lakh or more in a financial year for acquiring units of one or more schemes of a Mutual Fund (except amount received on account of transfer from one scheme to another of that Mutual Fund).
G. An authorised person as referred to in clause (c) of section 2 of the Foreign Exchange Management Act, 1999, needs to report the receipts from any person of an amount aggregating to Rs 10 lakh or more in a financial year for the sale of foreign currency.
H. The Inspector-General appointed under section 3 of the Registration Act 1908 or Registrar or Sub-Registrar appointed under section 6 of that Act needs to report purchase or sale by any person of immovable property of an amount Rs 30 lakh or more or valued by stamp valuation authority referred to in section 50C of the Act at Rs 30 lakh or more.
Thus, before depositing or withdrawing any amount in a bank account, we have to make sure that complying with the applicable provisions, we should not fall within such transactions which are required to be reported under Rule 114E either by a Banking Company, Co-operative Bank, Any other company or Trustee of Mutual Fund, among others.