The Cash Deposit Limit and Income Tax Department: In today’s digitalized world, the Income Tax Department has embraced the advancements in technology, making their operations more efficient and effective. With the aid of cutting-edge software and high-end hardware, the department’s IT Cell is equipped to closely monitor every bank account held by taxpayers. This enables them to keep a vigilant eye on financial transactions and detect any potential discrepancies.
Whenever any person deposits or withdraws an amount aggregating Rs. 10 Lakhs in a financial year, then such details will be provided by bank to Income Tax Department. Now two things will happen which are as follows:
- Income Tax Return filed by you Match with Transactions: If the Income Tax Return filed by you with the Department is aligning with the transactions of cash deposit in your saving bank account and also aligning with the Income appearing in FORM-26AS then you are good to go no more formalities will be required. But in these times and in most of the cases, it does not happen that income disbursed by anybody is in cash, this case is very rare.
- Income Tax Return filed by you Does NOT Match with Transactions: In this case, Department will simply issue a notice asking you the details of the income along with source of the income. And if the source of income explained by you is very genuine with proper supporting’s then the Notice might get disposed but if the explanations given by you are not much convincing to the Income Tax Department then a proper officer who is looking after your case in Income Tax Department will start legal proceedings will treat those cash deposits as the unexplained cash credit in your account and will make you pay 60 percent of tax on those cash deposit or unexplained cash credit income. And preceding year’s case, the department not only stops at 60 percent of tax, but also recover the interest on the 60 percent tax along with Penalty prescribed (Differs on case to case basis).
So how to Avoid these type of situation in real world?
- Avoid deposits of cash more than Rs.50, 000/- in a single transaction: If you are having cash let’s say, Rs 1 Lakh, and you want to deposit that money in your saving bank account then instead of depositing in a single transaction, break the payments in small pieces and then deposit through more than one transaction so that, single deposit would be less than Rs. 50,000/-.
- Do not let any of your relative or friend use your Saving bank account: Sometimes, we don’t deposit the cash in our saving bank account, but our relatives or close friends use to park their money. So to avoid getting notice, do not let anybody else’s money be deposited in your saving bank account, as if Income Tax Department issue notice, then tax will be leviable on that income in the name the account holder.
- Income Tax Return should align with Cash Deposits: If the cash deposits made by you is a part of income of yours then do not forget to include that in the Income Tax Return of yours. On the other hand if that deposits are part of exempt income, then also include that in the head of exempt income, but do not leave those deposits behind. To avoid this issue, please read the Bank statement carefully or take assistance of a professional (Chartered Accountant).
- Transact more with E-Banking: E-Banking not only known as internet banking offered by the designated bank, but other payment banks such as Paytm, Google pay, PhonePay are very much included in the form of E-banking. Transact more with these payment banks and avoid deposits of cash directly in bank account.
- Reconcile with Form-26AS: Always consider FORM-26AS first, and do not forget to include all the income details along with TDS details mentioned in FORM-26AS in your Income Tax Return. Make sure that, Gross amounts appearing in FORM-26AS is also appearing in the Gross Income Head of Income Tax Return filed by you.
- Keep documents of Property Sold: During financial year if any property is being sold by you, then keep all the documents such as sale deed, assessment etc with you safely. So that when department asks for the reason of cash receipt, you will present all the documents.
- Maintain a Cash Book: Try to maintain a cash book to record all the cash transactions in that, and take it into consideration as well while filing the Income Tax Return.
The above details are only provided for Cash Deposit in saving bank accounts, but same to be taken care of in case of Current account. The limit of cash deposit in a financial year in a current account would be Rs. 50 lakhs instead of Rs. 10 lakhs as in case of saving bank accounts. And all the other details mentioned in the article regarding saving bank account would be applicable for the current account as well.
Other Details regarding Cash Deposit in saving bank account.
- There is no limit regarding the maximum balance that one can have in their saving bank account.
- Cash Deposit Notice for Current year and Previous 6 year. For E.g. FY 2020-21 Cash Deposit notice can be served upon you by Income Tax Department upto 31.03.2028.
Hope the reader finds the article helpful, Thanks.