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.
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.
Cash Deposit Limit in Saving Account as Per Income Tax
The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.
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.
Turning to cash withdrawals, the rules for tax deducted at source (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 cr in the same financial year.
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.
269SS and 269T
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.
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
How much money can be deposited in a savings account?
There is no limit to the deposition of cash as such from the government but in a few cases individual banks and bank accounts have themselves made rules regarding the deposition of cash. But in general banks do not have such limits.
What are the rules for large deposits in a savings bank account?
Large deposits, typically exceeding INR 2,00,000 in a single day, may attract scrutiny from tax authorities. Documentation and source of funds may be required to ensure compliance with income tax regulations.
How much money can I transfer from one account to another without raising suspicion in India?
While there isn’t a fixed limit, frequent and large transfers might raise suspicion. It’s advisable to provide proper documentation and explanations for large transfers to ensure transparency.
What is the maximum amount we can keep in a savings account?
There isn’t a specific maximum amount you can keep in a savings account, but you should be aware of the deposit limits and ensure that your account activities align with income tax regulations.
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.
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.
The maximum cash deposit limit in a savings account without alerting tax authorities is regulated by income tax laws to monitor cash flow and prevent illegal financial activities. Depositing INR 10 lakh or more requires notifying tax authorities, and the threshold for notification has been raised to INR 50 lakh for current accounts. Although high-value cash transactions are not immediately taxed, financial institutions must report transactions exceeding these limits to the Income Tax Department.
Purpose of Income Notice for Cash Deposits
To find people who don’t file income tax returns or underreport their income, the Income Tax Department employs a variety of data analysis techniques. They use these techniques to identify individuals who may be evading taxes or engaging in financial activities that raise red flags. The department is coordinating with numerous government agencies in this effort to learn more about people who spend a lot of money but don’t file ITRs or understate their income. This collaborative approach allows them to cross-reference financial transactions and expenditures, making it easier to detect potential tax evasion or discrepancies.
What are the high-value transactions?
If the transactions are made in higher denominations or if they exceed a predetermined threshold, the taxpayer must report them in the income tax return. Failure to do so can trigger an income tax notice for cash transactions, which may result in penalties or further investigations by tax authorities. The department collaborates with various governmental agencies to gather financial data about taxpayers who engaged in high-value transactions but failed to disclose them when filing an ITR. This joint effort is aimed at identifying individuals who may be evading taxes or not fully complying with tax regulations, further emphasizing the importance of accurately reporting high-value financial activities to avoid potential income tax notice for cash transactions and its associated consequences.
What is Form 61A?
Typically, taxpayers are required to give the government a statement that details their “specified financial transactions,” or SFTs, for a particular financial period. As a result, Form 61A, formerly known as the Annual Information Return, is typically prepared in accordance with Section 285BA of the Income Tax Act (ITA) to avoid any potential cash deposit income tax notice. The nature and amount of the transaction must be reported on Form 61A, in accordance with Rule 114E of the Income Tax Rules of 1962. This process facilitates potential refund claims when necessary and helps maintain accurate records of tax filings, reducing the chances of receiving a cash deposit notice of income tax.
The Annual Information Return (AIR) Statement of Financial Transactions was developed by the Income Tax Department in order to identify high-value cash transactions involving taxpayers and to minimize the likelihood of an income tax notice cash deposit. Based on this, tax officials will gather information about anomalous high-value transactions in a given fiscal year, further reducing the possibility of an income tax notice for cash deposits being issued. Staying compliant with these regulations is crucial to avoid any unexpected cash deposit income tax notice and ensure a smooth tax filing process.
The following transactions are on the list of those for which a taxpayer might receive an Income Tax Notice for Cash Deposits:
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
2.
Cash deposit or withdrawal in savings bank account.
10,00,000
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
5. Cash investments in bonds, debentures, mutual funds, and shares. (Reporting is not necessary if the transaction involves the transfer of money from one scheme to another.)
10,00,000
Mutual fund trustees are required to submit Form 61A to the stock exchange in order to report transactions that exceed the cap.
Penalties for non-filing or furnishing wrong information in Form 61A
An individual neglect to file and submit Form 61A, regulatory authorities will issue a formal warning, providing a grace period of 30 days. During this interval, it is incumbent upon the individual to promptly submit the requisite form. Following the lapse of the 30-day grace period, a penalty of 500 per day will be levied for non-compliance. Whether knowingly or unknowingly, should an individual submit inaccurate information, they have a ten-day window to rectify the errors without incurring any penalties. In the event that the Income Tax authorities identify discrepancies, the individual is promptly notified and granted a 30-day period to rectify the inaccuracies. Failure to do so within the stipulated time frame may result in penalties, with a maximum limit set at INR 50,000. Extensions for rectifying mistakes can be considered in cases of default information entry.
Is Section 245N (a) of the Advance Ruling on Income Tax applicable to Residents as well?
Not at all; non-residents are covered by Section 245N (a). It only applies to a particular class of people, such as public sector units.
If I don’t reply to Income Tax Notice u/s 245 within 30 days, what happens?
The demand will automatically be subtracted from the refund if the assesses fails to reply to Income Tax Notice u/s 245 provided by the assessing officer in a timely manner, and in extreme situations, penalties may be imposed.
When the original return has been filed on or before the deadline, then only revised return can be filed. In other words, returns filed after due date cannot be revised.
Cash Deposit Limit in Saving Account as Per Income Tax
The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.
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.
Turning to cash withdrawals, the rules for tax deducted at source (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 cr in the same financial year.
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.
269SS and 269T
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.
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
How much money can be deposited in a savings account?
There is no limit to the deposition of cash as such from the government but in a few cases individual banks and bank accounts have themselves made rules regarding the deposition of cash. But in general banks do not have such limits.
What are the rules for large deposits in a savings bank account?
Large deposits, typically exceeding INR 2,00,000 in a single day, may attract scrutiny from tax authorities. Documentation and source of funds may be required to ensure compliance with income tax regulations.
How much money can I transfer from one account to another without raising suspicion in India?
While there isn’t a fixed limit, frequent and large transfers might raise suspicion. It’s advisable to provide proper documentation and explanations for large transfers to ensure transparency.
What is the maximum amount we can keep in a savings account?
There isn’t a specific maximum amount you can keep in a savings account, but you should be aware of the deposit limits and ensure that your account activities align with income tax regulations.
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.
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.
Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored. To prevent tax evasion and money laundering, tax authorities closely monitor a variety of cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have an obligation to report cash transactions exceeding a specific threshold to the tax department. Below are several cash transactions subject to vigilant monitoring by tax authorities:
Acquisition of real estate assets
In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:
Acquisition of stocks, mutual funds, debentures, and bonds
Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.
Type of security acquired (e.g., bond, debenture, share, mutual fund unit).
This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.
The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.
Acquisition of foreign currency
Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.
The subsequent foreign exchange transactions must be reported to the Income Tax Department:
The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.
This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.
Cash deposits in bank accounts
The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:
The account number(s) in which the cash deposit was placed
This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.
The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.
The bank must furnish the following details to the CBDT:
An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
An individual deposits ₹2 lakh in cash into a new FD in March 2023.
The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.
Payments made using credit cards
The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.
The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:
The payment method (e.g., cash, cheque, NEFT, etc.)
Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.
Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored. To prevent tax evasion and money laundering, tax authorities closely monitor a variety of cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have an obligation to report cash transactions exceeding a specific threshold to the tax department. Below are several cash transactions subject to vigilant monitoring by tax authorities:
Acquisition of real estate assets
In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:
Acquisition of stocks, mutual funds, debentures, and bonds
Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.
Type of security acquired (e.g., bond, debenture, share, mutual fund unit).
This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.
The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.
Acquisition of foreign currency
Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.
The subsequent foreign exchange transactions must be reported to the Income Tax Department:
The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.
This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.
Cash deposits in bank accounts
The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:
The account number(s) in which the cash deposit was placed
This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.
The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.
The bank must furnish the following details to the CBDT:
An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
An individual deposits ₹2 lakh in cash into a new FD in March 2023.
The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.
Payments made using credit cards
The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.
The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:
The payment method (e.g., cash, cheque, NEFT, etc.)
Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.
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.
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.
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.
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.
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.
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.
The Income Tax Department closely monitors cash transactions across various sales and purchases. This oversight includes the sale of property, financial interactions between taxpayers, large cash withdrawals or deposits in bank accounts, cash sales and purchases, and transactions related to debts and credits. It also encompasses undisclosed bank accounts and discrepancies in bookkeeping.
If any discrepancies surface, taxpayers risk receiving an income tax notice. In Indore (Madhya Pradesh): Mahesh Agarwal, a senior advocate and tax practitioner, emphasized this point during his keynote address at a seminar organized by the Tax Practitioners Association (TPA) and the Indore CA branch on Friday. The seminar focused on “Cash Transactions and Income Tax Implications.”
Agarwal explained that the Income Tax Department receives reports of cash transactions from banks and other institutions through mechanisms such as “Suspicious Cash Transactions” and “Cash Transaction Reports.” These reports are then cross-referenced with the taxpayer’s declared income and the nature of that income.
Notices are issued if suspicious transactions are detected. He elaborated that the Income Tax Department acts on reports including Cross Border Wire Transfer Reports (related to international dealings), reports from the Finance Intelligence Unit (FIU) of the Finance Ministry, high-risk refund reports, donations to recognized and unrecognized political parties, and instances of bogus refunds. If cash transactions indicate potential criminal activity or money laundering, the Enforcement Directorate (ED) may also get involved.
Given the current landscape, Agarwal stressed the importance of minimizing cash transactions. Even considerable cash gifts received during weddings or celebratory events can trigger inquiries into their legal sources. He pointed out that in this digital age, the Income Tax Department has access to a wealth of information about taxpayers.
Today, PAN and Aadhar are linked, and mobile numbers are connected to Aadhar as well. This network allows the Income Tax Department to monitor every transaction made by the taxpayer, including online food orders, purchases from major brands, air travel, high-end dining, and acquisitions of expensive gadgets.
As a result, virtually all financial activities of taxpayers fall under the scrutiny of the Income Tax Department. Hence, it becomes essential to limit cash transactions and related expenses. A significant number of CAs and tax practitioners, including CA Shailendra Singh Solanki, CA Rakesh Mittal, CA Ajay Samaria, CA Pramod Garg, CA Kunal Agarwal, CA Deepak Maheshwari, Govind Goyal, CA Avinash Agarwal, and Mrinal Agarwal, were present at the seminar.
Below are several cash transactions subject to vigilant monitoring by tax authorities:
Acquisition of real estate assets
In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:
This data is utilized by tax authorities to monitor substantial cash transactions and identify potential instances of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.
Acquisition of stocks, mutual funds, debentures, and bonds
Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.
Likewise, companies that issue shares must report any receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also extends to the purchase of mutual funds.
The company or institution must provide the following information to the Income Tax Department:
Type of security acquired (e.g., bond, debenture, share, mutual fund unit).
This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.
The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.
Acquisition of foreign currency
Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.
The subsequent foreign exchange transactions must be reported to the Income Tax Department:
The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.
This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.
Cash deposits in bank accounts
The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:
The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.
This data enables the CBDT to pinpoint taxpayers who may be underreporting their total income or engaging in dubious cash deposits. These are instances of cash deposits into time deposits that necessitate reporting to the CBDT:
An individual deposits ₹5 lakh in cash into a new FD in January 2023.
An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
An individual deposits ₹2 lakh in cash into a new FD in March 2023.
The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.
Payments made using credit cards
The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.
The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:
The payment method (e.g., cash, cheque, NEFT, etc.)
Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.
Cash Deposit Limit in Saving Account as Per Income Tax
The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.
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.
Section 194N
Turning to cash withdrawals, the rules for tax deducted at source (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 cr in the same financial year.
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.
269SS and 269T
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.
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
Navigating the landscape of cash deposits and transactions within the bounds of income tax regulations is paramount for maintaining financial legality and transparency. By understanding the cash deposit limits in savings accounts and other related regulations, individuals and businesses can avoid unnecessary legal troubles and contribute to a more transparent financial ecosystem.
How much money can be deposited in a savings account?
There is no limit to the deposition of cash as such from the government but in a few cases individual banks and bank accounts have themselves made rules regarding the deposition of cash. But in general banks do not have such limits.
What are the rules for large deposits in a savings bank account?
Large deposits, typically exceeding INR 2,00,000 in a single day, may attract scrutiny from tax authorities. Documentation and source of funds may be required to ensure compliance with income tax regulations.
How much money can I transfer from one account to another without raising suspicion in India?
While there isn’t a fixed limit, frequent and large transfers might raise suspicion. It’s advisable to provide proper documentation and explanations for large transfers to ensure transparency.
What is the maximum amount we can keep in a savings account?
There isn’t a specific maximum amount you can keep in a savings account, but you should be aware of the deposit limits and ensure that your account activities align with income tax regulations.
It is not uncommon to encounter reports regarding income tax officials conducting raids on individuals for possessing unauthorized cash and other valuables within their residences or workplaces. In certain instances, such cash and valuables are confiscated, and in others, the individuals involved face arrest. This raises an important question: Is possessing a significant amount of cash considered a crime in India? Additionally, what is the permissible limit of cash that one can retain at home?
Tax and legal experts clarify that the Income Tax Act does not specify any regulations regarding this matter. Individuals are permitted to keep any amount of cash at home, as long as it is derived from legitimate sources and duly reported in their Income Tax Returns (ITR) and accounting records.
Manmeet Kaur, Partner, Karanjawala & Co, says that there is no set legal restriction on the quantity of cash you can retain at home in India. But it’s crucial to make sure the money comes from a reliable source and is reported in your income tax returns (ITR) and, if necessary, your books of accounts.
“Sections 68 to 69B of the Income Tax Act contain provisions addressing unexplained income, which indicates that if you are unable to offer a convincing justification for the source of the funds, they may be subject to taxation as unexplained income,” Kaur says.
Amit Gupta, Partner at Saraf and Partners, also informs that the Income Tax Act is sub-silentio on the maximum quantum of cash holdings. However, cash holdings beyond reasonable limits would definitely invite legitimate suspicions on such cash holdings being unaccounted.
“In case of any investigation, the source for every last rupee of the cash holding would need to be proved to the tax department to be from legitimate sources duly disclosed and accounted for in the books of accounts and tax-filings made by the person. If there is any failure to furnish a satisfactory explanation about the nature and source of such funds, then the said unexplained money would also attract the penal consequences and higher tax outlay under the provisions of the Income Tax Act,” he adds.
It’s, therefore, a good idea to maintain track of where your money comes from and make sure all of your transactions are recorded and accounted for in order to prevent any problems with tax authorities. For example, if you operate a business, it is essential that your records align with the cash book you maintain. Additionally, individuals who are not engaged in business activities must also provide an explanation for the origin of any cash they possess.
A lack of a satisfactory explanation regarding the origin and nature of these funds may result in the classification of the money as taxable unexplained income. In such cases, this unexplained income could be subject to a tax rate of 78%, in addition to a penalty.
Cash deposited into a savings account, have you ever considered the maximum amount you can deposit and withdraw within a financial year to remain below the tax authorities’ scrutiny?
Individuals from diverse backgrounds, including those with fixed salaries, are generally encouraged to maintain at least one savings account to fulfill their banking requirements. Many individuals also opt to hold multiple accounts for various purposes. Those with a consistent income typically establish a savings bank account as it provides a secure location for their funds while also allowing them to earn interest on their deposits.
Nevertheless, although there is typically no cap on the amount that can be deposited into a savings account, have you ever considered the maximum amount you can deposit and withdraw within a financial year to remain below the tax authorities’ scrutiny?
At the outset, it would be imperative to highlight that the Government has, in its endeavour to provide the requisite impetus to transactions through banking channels and other accepte electronic modes, put in place various measures to curb cash transactions which are purported to fuel the parallel black economy. Some banks may also have certain restrictions based on the type of account being operated by an individual.
The Reserve Bank of India (RBI) requires banks to report cash deposits and withdrawals of Rs 10 lakh or more to their controlling offices. Depositing an amount exceeding Rs 10 lakh in a single or combined financial year also draws the attention of the Income Tax Department (ITD).
“Cash deposit exceeding Rs 10 lakh during a financial year (from April 01 to March 31) across a person’s savings accounts is reported to the Income Tax Department. Banks are required by the Central Board of Direct Taxes (CBDT) to flag such transactions, even if the deposit is distributed among multiple accounts. Further, every person entering into above transactions must mandatorily quote their PAN or Aadhaar in the documents pertaining to such transactions. For a deposit exceeding Rs 50,000 in cash, PAN number is to be quoted mandatorily as per Income Tax Rules,” informs Manmeet Kaur, Partner, Karanjawala & Co.
Tha fact is every deposit into any bank account can be scrutinised by the tax authorities for ascertaining the source thereof.
“Under the extant provisions of the Income Tax Act and corresponding Income tax Rules, PAN is mandated to quoted at the time of undertaking certain prescribed transactions including, inter-alia, opening an account (other than Basic Savings Bank Deposit Account) with a banking company, cash deposits with banks exceeding Rs 50,0000. Further, it is mandatory for the banks to furnish the Statement of Financial Transactions (SFT) to the Income Tax Department reporting cash deposits of Rs 10 lakh or more in a savings account during a fiscal year,” says Amit Gupta, Partner at Saraf and Partners.
It is essential to recognize that although the very deposit of cash in itself doesn’t not entail immediate taxation, “but deposits which cannot be corroborated with a genuine disclosed / taxed source would expose the taxpayers making such deposits to rigours of anti-abuse provisions entailing added income tax exposures penal consequences,” adds Gupta.
As far as cash transactions go, Section 269ST prohibits any person to receive an amount of Rs 2 lakh and above in cash: in aggregate from a person in a day, or in a single transaction, or in respect of transactions relating to one event or occasion from a person.
The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.
The department employs advanced data analytics tools to detect disparities between declared income and incurred expenses. It can cross-check information from diverse sources such as bank statements, property records, investment details, and travel records to construct a comprehensive financial profile of individuals. Apart, it also can collect information from external sources such as employers, travel agencies, and stock exchanges to validate income sources and pinpoint possible discrepancies.
This degree of scrutiny proves valuable in suspected cases of tax evasion, enabling the department to initiate scrutiny assessments, issue notices, and conduct inquiries directly to accumulate evidence and recover taxes. Below is a compilation of common transactions that could trigger a tax notice, even when conducted in cash:
Depositing large amounts in cash in savings accounts
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. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.
Surpassing the ₹10 lakh limit doesn’t inherently suggest tax evasion, but it does prompt scrutiny from the Department. Explaining the source of the deposited funds becomes necessary, particularly if it doesn’t align with your declared income. If the explanation is considered unsatisfactory or if discrepancies arise in your tax returns, you could potentially face additional inquiries or penalties.
The ITD’s evaluation is also influenced by the intended use of the deposited funds. For instance, placing business income into a personal account could lead to concerns. Your comprehensive financial profile, encompassing income sources, expenses, investments, and other significant transactions, is taken into account by the ITD. Ensuring compliance is essential; maintaining accurate records and aligning your tax returns with your income and expenses is crucial to prevent unwarranted scrutiny.
Fixed deposits made with cash
Given the recent uptick in fixed deposit (FD) rates, these have become increasingly appealing choices for investors, especially for those in search of a steady and predictable income. The existing limit for reporting cash deposits to the ITD is ₹10 lakh within a single financial year (April 01 to March 31), irrespective of the purpose, including fixed deposits. It is crucial to take note of multiple deposits across different bank accounts. Even if you divide the cash deposit into smaller amounts across various accounts, any combined sum surpassing ₹10 lakhs will be brought to the attention of authorities.
Surpassing the limit doesn’t inherently indicate tax evasion, but it does attract the ITD’s attention, necessitating an explanation for the source of the funds. This scrutiny applies to any fixed deposit exceeding ₹10 lakhs.
The ₹10 lakh limit applies to the cumulative value of your FD holdings across all accounts and financial institutions, not solely to the individual deposit amount. Similar to cash deposits, surpassing this threshold may trigger inquiries regarding the source of funds, particularly if it doesn’t align with your declared income.
Purchases of shares, mutual funds, and bonds made in cash
Surpassing a particular threshold may prompt scrutiny from the ITD, but it does not automatically indicate the issuance of a tax notice or any wrongdoing. The ITD’s emphasis lies in identifying inconsistencies between declared income and expenses rather than discouraging investment through specific thresholds.
Surpassing any high-value transaction threshold, which includes cash payments, could initiate general scrutiny by the ITD. This examination is designed to uncover possible disparities between your declared income and expenses and is not specifically focused on credit card bill payments.
Cash payments related to properties
In India, when acquiring a property valued at over ₹30 lakhs, the ITD mandates the buyer to disclose the origin of the funds utilized for the purchase. This measure is implemented to counteract tax evasion and prevent money laundering activities.
The existing threshold for compulsory declaration of the source of funds is ₹50 lakhs for property acquisitions in urban areas and ₹20 lakhs for rural areas. Nevertheless, certain states may enforce more stringent thresholds, hence it is advisable to verify the specific regulations applicable in your region.
You have the option to declare the source of funds by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property purchase value is below the threshold, the Department retains the authority to request the source of funds if there are suspicions of discrepancies in your income or other transactions. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.
To address an ITD notice concerning high-value cash transactions, it is essential to possess sufficient documentation substantiating your assertion about the source of funds. This documentation may include bank statements, investment records, or inheritance papers.
If you are uncertain or have concerns regarding the declaration of the source of funds, it is advisable to seek advice from a qualified tax advisor for personalized guidance. Upholding transparency and adhering to tax regulations is essential for prudent financial management and mitigating potential legal complications.
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.
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.
The maximum cash deposit limit in a savings account without alerting tax authorities is regulated by income tax laws to monitor cash flow and prevent illegal financial activities. Depositing INR 10 lakh or more requires notifying tax authorities, and the threshold for notification has been raised to INR 50 lakh for current accounts. Although high-value cash transactions are not immediately taxed, financial institutions must report transactions exceeding these limits to the Income Tax Department.
Purpose of Income Notice for Cash Deposits
To find people who don’t file income tax returns or underreport their income, the Income Tax Department employs a variety of data analysis techniques. They use these techniques to identify individuals who may be evading taxes or engaging in financial activities that raise red flags. The department is coordinating with numerous government agencies in this effort to learn more about people who spend a lot of money but don’t file ITRs or understate their income. This collaborative approach allows them to cross-reference financial transactions and expenditures, making it easier to detect potential tax evasion or discrepancies.
What are the high-value transactions?
If the transactions are made in higher denominations or if they exceed a predetermined threshold, the taxpayer must report them in the income tax return. Failure to do so can trigger an income tax notice for cash transactions, which may result in penalties or further investigations by tax authorities. The department collaborates with various governmental agencies to gather financial data about taxpayers who engaged in high-value transactions but failed to disclose them when filing an ITR. This joint effort is aimed at identifying individuals who may be evading taxes or not fully complying with tax regulations, further emphasizing the importance of accurately reporting high-value financial activities to avoid potential income tax notice for cash transactions and its associated consequences.
What is Form 61A?
Typically, taxpayers are required to give the government a statement that details their “specified financial transactions,” or SFTs, for a particular financial period. As a result, Form 61A, formerly known as the Annual Information Return, is typically prepared in accordance with Section 285BA of the Income Tax Act (ITA) to avoid any potential cash deposit income tax notice. The nature and amount of the transaction must be reported on Form 61A, in accordance with Rule 114E of the Income Tax Rules of 1962. This process facilitates potential refund claims when necessary and helps maintain accurate records of tax filings, reducing the chances of receiving a cash deposit notice of income tax.
The Annual Information Return (AIR) Statement of Financial Transactions was developed by the Income Tax Department in order to identify high-value cash transactions involving taxpayers and to minimize the likelihood of an income tax notice cash deposit. Based on this, tax officials will gather information about anomalous high-value transactions in a given fiscal year, further reducing the possibility of an income tax notice for cash deposits being issued. Staying compliant with these regulations is crucial to avoid any unexpected cash deposit income tax notice and ensure a smooth tax filing process.
The following transactions are on the list of those for which a taxpayer might receive an Income Tax Notice for Cash Deposits:
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
2.
Cash deposit or withdrawal in savings bank account.
10,00,000
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit.
5. Cash investments in bonds, debentures, mutual funds, and shares. (Reporting is not necessary if the transaction involves the transfer of money from one scheme to another.)
10,00,000
Mutual fund trustees are required to submit Form 61A to the stock exchange in order to report transactions that exceed the cap.
Penalties for non-filing or furnishing wrong information in Form 61A
An individual neglect to file and submit Form 61A, regulatory authorities will issue a formal warning, providing a grace period of 30 days. During this interval, it is incumbent upon the individual to promptly submit the requisite form. Following the lapse of the 30-day grace period, a penalty of 500 per day will be levied for non-compliance. Whether knowingly or unknowingly, should an individual submit inaccurate information, they have a ten-day window to rectify the errors without incurring any penalties. In the event that the Income Tax authorities identify discrepancies, the individual is promptly notified and granted a 30-day period to rectify the inaccuracies. Failure to do so within the stipulated time frame may result in penalties, with a maximum limit set at INR 50,000. Extensions for rectifying mistakes can be considered in cases of default information entry.
Is Section 245N (a) of the Advance Ruling on Income Tax applicable to Residents as well?
Not at all; non-residents are covered by Section 245N (a). It only applies to a particular class of people, such as public sector units.
If I don’t reply to Income Tax Notice u/s 245 within 30 days, what happens?
The demand will automatically be subtracted from the refund if the assesses fails to reply to Income Tax Notice u/s 245 provided by the assessing officer in a timely manner, and in extreme situations, penalties may be imposed.
When the original return has been filed on or before the deadline, then only revised return can be filed. In other words, returns filed after due date cannot be revised.
The Finance Act 2017, took various measures to restrain black money and as an outcome of these measures, a new Section 269ST was inserted in the Income Tax Act. As the Section 269ST imposed restrictions on a transaction, the cash transaction limit per day is limited to Rs.2 Lakhs per day. Section 269ST states that no person shall receive an amount of Rs 2 Lakh or more (cash receipt limit):
However, the Central Board of Direct Taxes (CBDT) has clarified that this cash withdrawal limit does not apply for withdrawals from Banks and Post offices.
Thus the provisions of section 269ST will not apply to:
Cash received through an Account Payee Cheque or an Account Payee Bank draft or use of electronic clearing system (ECS) through a bank account.
Any receipt by the Government, any banking company, post office savings bank or co-operative bank.
Transactions of nature referred to in section 269SS.
Such other persons or class of persons or receipts, which the Central Government may, by notification Official Gazette, specify.
Withdrawal from Post Office
Post offices under the Department of India Post facilitate drawings from Post Office savings account along with ATM facility.
The limit of cash that can be withdrawn in a single day from a post office or ATM is Rs.25,000 and is limited to Rs.10,000 per transaction.
Withdrawal from other bank ATMs is admissible wherein it is upto 3 free transactions in metro cities while it is five free transactions in non-metro cities. A fee of Rs.20 with GST is charged for transactions above the free transactions.
Withdrawals using chequebook has been restricted to 60 withdrawals per half-year by most of the banks.
The amount of money that can be debited from the current account is limited to Rs.1,00,000 per week whereas an overall of Rs.24,000 can be drawn per week from the savings account.
ATM withdrawals allow Rs.10,000 to be drawn per day and permits unlimited free transactions for salary account whereas 3 transactions from other ATMs with a fee of Rs.20 plus GST per month.
Cash Transaction Limit under Income Tax
The following are the main income tax sections that pertain to cash transaction limit in India:
Section 40A(3) and Section 43 – Pertains to Cash Payment
Section 269SS and Section 269ST – Pertains to Cash Receipts
Section 40A(3) of the Income Tax Act pertains to cash payment limit for expenditure made in cash. Under Section 40A(3), if payment for any expenditure of over Rs.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act. Hence, it is important for all taxpayers to make any payment for the expense over Rs.10,000 through banking channels like debit card, account transfer, cheque or demand draft.
Section 43 of Income Tax
Under section 43 of Income Tax Act, if payment of more than Rs.10,000 is made by a taxpayer for the acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset. Hence, it is important for all taxpayers acquiring assets to make all payments to the seller through banking channels.
Section 269SS of Income Tax
Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20,000 in cash. All loans and deposits of more than Rs.20,000 must always be taken through a banking channel. Section 269SS of the Income Tax Act is however not applicable when accepting/taking loan or deposit from a person or entity mentioned below:
Government;
Any banking company, post office saving bank or co-operative bank;
Any corporation established by a Central, State or Provincial Act
An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Finally, if the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under Income Tax Act, then the provisions of Section 269SS will not apply.
Penalty under Section 269SS
Failure to comply with provisions of section 269SS could lead to a penalty equal to the amount of loan or deposit or specified sum accepted.
Section 269ST of Income Tax Act – Cash receipt limit
Section 269ST of the Income Tax Act provides that no person can receive an amount of INR 2 Lakhs or more in cash:
Provisions of Section 269ST are not applicable when cash of more than Rs.2 lakhs is received from the following persons:
Government;
Any banking company, post office saving bank or co-operative bank;
An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
Penalty under Section 269ST
As per section 271DA, in case of failure to comply with provisions of section 269ST, a penalty amount equal to the amount of receipt is payable.
Section 269T of Income Tax Act
Section 269T provides that any branch of a banking company or a co-operative society, firm or another person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:
The aggregate amount of loans or deposits held by such person, either in his name or jointly with another person on the date of such repayment together with interest is INR 20,000 or more.
Provisions of section 269T are not applicable when the loan is repaid or deposit taken or accepted from below mentioned person:
Government;
Any banking company, post office saving bank or co-operative bank;
Any corporation established by a Central, State or Provincial Act
An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Penalty under Section 269T
As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable.
Cash Deposit Limit in Saving Account as Per Income Tax
The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.
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.
Section 194N
Turning to cash withdrawals, the rules for tax deducted at source (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 cr in the same financial year.
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.
269SS and 269T
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.
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
Navigating the landscape of cash deposits and transactions within the bounds of income tax regulations is paramount for maintaining financial legality and transparency. By understanding the cash deposit limits in savings accounts and other related regulations, individuals and businesses can avoid unnecessary legal troubles and contribute to a more transparent financial ecosystem.
How much money can be deposited in a savings account?
There is no limit to the deposition of cash as such from the government but in a few cases individual banks and bank accounts have themselves made rules regarding the deposition of cash. But in general banks do not have such limits.
What are the rules for large deposits in a savings bank account?
Large deposits, typically exceeding INR 2,00,000 in a single day, may attract scrutiny from tax authorities. Documentation and source of funds may be required to ensure compliance with income tax regulations.
How much money can I transfer from one account to another without raising suspicion in India?
While there isn’t a fixed limit, frequent and large transfers might raise suspicion. It’s advisable to provide proper documentation and explanations for large transfers to ensure transparency.
What is the maximum amount we can keep in a savings account?
There isn’t a specific maximum amount you can keep in a savings account, but you should be aware of the deposit limits and ensure that your account activities align with income tax regulations.
The cash deposit limit in savings account as per income tax is Rs.10 Lakh during a financial year. All banks or financial institutions must declare large cash deposits according to Section 114B of the Income Tax Act, 1962.
Cash deposits are monitored by the Income Tax department, and the cash deposit limit in savings account refers to the amount deposited by each person. It is calculated taking into account all the bank accounts of an individual.
Cash Deposit Limit in Savings Account per Day
The cash deposit limit in savings account per day is Rs.1 Lakh. You can, however, deposit up to Rs.2,50,000 in a day as long as you don’t do it too often.
What Will Happen if You Cross the Cash Deposit Limit in Savings Account per Month?
If you cross the cash deposit limit in savings account, the banks are required to report the excess transactions to the Income Tax Department. But, they will not be taxed outright. Here are certain things that you must keep in mind regarding the cash deposit limit in savings account –
Crossing the cash deposit limit in savings account per day of Rs.2.5 Lakh for general and Rs.5 Lakh by senior citizens is considered a large deposit
The IT department will contact you through Email or SMS to furnish details about the source of income
To deposit more than Rs.50,000, you will have to show your PAN card details if it is not already provided to the bank
On being unable to explain the origin of the income, it is well within the rights of the IT department to serve notices under Section 68 of the IT Act
If you still cannot verify the income sources, a 60% tax, 25% surcharge, and 4% cess is imposed
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash Transaction Limit
Apart from cash deposits, there are also cash transaction limits in place to regulate other types of financial activities. These limits are designed to track and monitor transactions that involve substantial amounts of cash. These transactions can include cash withdrawals, transfers, and payments. Cash transactions are restricted by Section 269ST and can only be up to INR 2 Lakh per day. All the banks have cash transactions below this value.
Cash Withdrawal Limit
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
Always bear in mind the stipulated cash transaction limit for property acquisitions and tailor your investment strategy accordingly.
Conclusion
There is as such no hard and fast rule about the cash deposit limit in savings account per month. On the other hand, there is a cash deposit limit in savings account per day, which is ideally Rs.1 Lakh. However, you can deposit up to Rs.2.5 Lakh on certain occasions.
When told to explain why you crossed the cash deposit limit of one year, you can show it as household savings, a gift, or a loan from family or friends. You might be required to show the PAN card of the payer or a receipt to prove their authenticity.
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. There are separate amounts as limits for different types of accounts.
Cash Deposit Limit in Saving Account as per Income Tax – FAQs
Can I Deposit 3 Lakh Cash In My Savings Account?
You can deposit Rs.3 Lakh in your savings bank account as the cash deposit limit in savings account as per income tax is Rs.10 Lakh in a year. But you can’t deposit the total amount in a single day as the cash deposit limit in savings account per day is just Rs.1 Lakh.
What Is The Maximum Cash Deposit Limit In Savings Account?
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash Transaction Limit
Apart from cash deposits, there are also cash transaction limits in place to regulate other types of financial activities. These limits are designed to track and monitor transactions that involve substantial amounts of cash. These transactions can include cash withdrawals, transfers, and payments. Cash transactions are restricted by Section 269ST and can only be up to INR 2 Lakh per day. All the banks have cash transactions below this value.
Cash Withdrawal Limit
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Fixed Deposit Limit
Fixed deposits, a popular investment option, also have specific rules regarding cash deposits. These rules dictate the maximum amount that can be deposited in a fixed deposit account, ensuring transparency and compliance.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
Always bear in mind the stipulated cash transaction limit for property acquisitions and tailor your investment strategy accordingly.
What are the rules for large deposits in a savings bank account?
Large deposits, typically exceeding INR 2,00,000 in a single day, may attract scrutiny from tax authorities. Documentation and source of funds may be required to ensure compliance with income tax regulations.
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.
# 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).
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.
In a major development during the ongoing Lok Sabha elections, the Income Tax Department has reported a remarkable seizure of Rs 1100 crore in cash and jewellery, setting a new record. According to sources, this marks a substantial 182% increase from the Rs 390 crore seized during the 2019 Lok Sabha elections.
The heightened vigilance and enforcement of the Model Code of Conduct (MCC), which came into effect on March 16, have been pivotal in these significant seizures. The MCC, enforced nationwide, aims to regulate the conduct of political parties and candidates, specifically focusing on preventing unethical practices and promoting ethical behavior throughout the electoral process.
Delhi and Karnataka emerged at the forefront with the highest seizures, each state comprising more than Rs 200 crore worth of cash and jewellery. Following closely, Tamil Nadu recorded the second-highest seizure amounting to Rs 150 crore, while Andhra Pradesh, Telangana, and Odisha collectively accounted for more than Rs 100 crore worth of cash and jewellery.
With the Election Commission of India (ECI) announcing the commencement of polls for the 2024 Lok Sabha Election, central agencies have been placed on high alert to ensure strict adherence to guidelines. The primary focus remains on monitoring the movement of cash, liquor, freebies, drugs, jewellery, and other items that could potentially influence voters.
Notably, 24×7 control rooms have been established in each state to combat the illegal movement of cash, especially by political figures vying for electoral advantage. The MCC dictates that individuals found carrying cash exceeding Rs 50,000 or possessing new items worth over Rs 10,000 without supporting documents will face immediate seizure, underscoring the stringent measures in place to maintain the integrity of the electoral process.
Furthermore, seized cash exceeding Rs 10 lakh will be subject to further scrutiny by the Income Tax Department, illustrating the gravity of the repercussions for those attempting to subvert the electoral guidelines.
The record seizure by the Income Tax Department stands as a testament to the authorities’ commitment to upholding the democratic values of free and fair elections, and serves as a stark warning to those seeking to compromise the integrity of the electoral process.
High Value Transactions- List of Transactions Attracting Notice from Income Tax Department
List of High Value Transactions-
Acquisition of real estate assets
In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:
This data is utilized by tax authorities to monitor substantial cash transactions and identify potential instances of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.
Acquisition of stocks, mutual funds, debentures, and bonds
Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.
Likewise, companies that issue shares must report any receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also extends to the purchase of mutual funds.
The company or institution must provide the following information to the Income Tax Department:
The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.
Acquisition of foreign currency
Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.
The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.
This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.
Cash deposits in bank accounts
The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:
The account number(s) in which the cash deposit was placed
This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.
Money deposited in fixed deposits
The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.
An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
An individual deposits ₹2 lakh in cash into a new FD in March 2023.
The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.
Payments made using credit cards
The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.
The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:
The payment method (e.g., cash, cheque, NEFT, etc.)
Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.
The cash deposit limit in savings accounts refers to the maximum amount of cash that an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor and regulate the flow of cash transactions, curbing the potential for money laundering, tax evasion, and other illicit financial activities.
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.
Turning to cash withdrawals, the rules for tax deducted at source (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 cr 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 income tax returns (ITR).
Section 269ST
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.
269SS and 269T
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.
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.
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.
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.
Other Cash Transaction Limits
Following are some of the other kinds of transactions prevalent in the banking sector:
Cash deposit limit in Current Account
For current accounts, which are primarily used by businesses and enterprises for daily transactions, the cash deposit limit is often higher compared to savings accounts. This is because businesses deal with larger volumes of cash due to their operational nature.
However, specific limits can vary depending on the bank and the business’s financial activities. For example, the cash deposit limit in SBI for current accounts is 5 lakh to INR 100 crore per month. In HDFC it is 60 lakh or ten times the value of the current monthly balance (AMB), after crossing this limit the bank may charge some interest from the depositor.
Cash withdrawal limits exist to ensure that large cash withdrawals are reported to the relevant authorities. While these limits can vary between banks and account types, they are generally put in place to prevent illegal activities such as money laundering and tax evasion.
Should an individual possess three distinct bank accounts across three separate banks, they could potentially withdraw a cumulative amount of INR 1 crore from each bank, summing up to a total withdrawal of INR 3 crore, without incurring any TDS implications.
Cash Gift Limit
Income tax regulations also dictate the limit on cash gifts that can be given without incurring taxation. This is to prevent individuals from using cash gifts to evade taxes by disguising taxable income as gifts.
As per the existing tax regulations, not all gifts received within India are liable for taxation. The Income Tax Act of 1961 encompasses crucial provisions that facilitate the receipt of several gifts that are exempt from taxation.
For instance, if you happen to receive gifts or monetary funds amounting to INR 50,000 or less in a single financial year, you are not obliged to remit any gift tax.
Similarly, when you receive presents from sources such as your parents, spouse, siblings, or other immediate relatives including your in-laws, you are relieved from any tax obligations. This exemption from gift taxation remains applicable regardless of the value of the gifts received.
Tax-saving fixed deposits offer a versatile investment opportunity with a minimum entry threshold of INR 100. On the upper end of the spectrum, investors can allocate up to INR 1.5 lakh per financial year into such deposits, thereby capitalizing on potential tax benefits.
Credit Card Bill Payment Limit
For credit card bill payments made in cash, there might be limitations in place to prevent the use of cash payments for settling extremely high credit card bills.
For Credit Card (VISA) bill payments through SBI, the prescribed per diem limit stands at INR 50,000, with an accompanying per transaction cap of INR 25,000, and HDFC is INR 49,000. The bill payment limit is more or less the same for all the banks.
Real Estate Transactions Limit
In real estate transactions, especially property purchases, cash is sometimes used for under-the-table deals. To counter this, there are limits on the amount of cash that can be transacted in real estate deals, ensuring that such transactions are properly documented and taxed.
In India, cash transactions related to real estate purchases are subject to strict regulations and limitations as part of the government’s efforts to curb black money and promote transparency in the real estate sector. The government has set a cash transaction limit for real estate transactions, beyond which the use of cash is prohibited.
It is Not Permissible to Purchase a Flat Using Full Cash
The acquisition of a flat or any property using full cash is not permissible. Real estate transactions are bound by a cash transaction limit, and any transaction exceeding INR 20,000 in cash cannot be executed. As per Section 269SS of the Income Tax Act, receiving payments exceeding INR 20,000 in cash renders the seller liable for a penalty fee of 100%. This regulation, instituted by the Central Board of Direct Taxes (CBDT), has been in effect since June 1, 2015.
It is Acceptable to Record Cash Payments in the Sale Deed
Indeed, you can document cash payments as transaction evidence in the registered title deed. Nonetheless, it is crucial to ensure that any cash payment does not surpass the limit of INR 20,000.
Always bear in mind the stipulated cash transaction limit for property acquisitions and tailor your investment strategy accordingly.
To tackle the problem of tax evasion and prevalence of black money there are several rules made by the Government of India regardinghow much cash can be kept in one’s possession and also regarding cash transactions. Therefore, a basic question that arises is whether there isany limits on how much cash can be kept at home? Keeping cash at home depends on two things, your financial capability and your transactional habit.
With regards how much cash can people keep in their homes, then there are no such limits as tohow much cash can be kept at homes. You cankeep as much cash at home as people want. The only that needs to be remembered is that you should have a record of each and every penny and also have evidence of the source of your income and whether you have paid your taxes or not.
According to the income tax rules, you can keepany amount of cash at home. Just in case youget caught by the investigating agency for anyreason, then you will have to prove its source. Along with this, ITR declaration will also have to be shown. If you are not able to do this then action can be taken against you. After demonetisation, the Income Tax had said that if undisclosed cash is found in your house, then upto 137 per cent of the total recovered amountcan be taxed.
According to the rules of the Central Board of Direct Taxes, you have to show your PAN cardwhenever you deposit cash or make cashwithdrawals of above Rs 50,000 at a time. If you deposit more than 20 lakh cash in a year, then hewill have to show your PAN and Aadhaar card. Ifyou fail to do so then a fine of up to 20 lakhs canbe imposed upon you
Limits on cash transactions, that you need to know
2 per cent TDS will have be paid if more than 1 crore cash is withdrawn from the bank in a year.
Cash transactions of more than 20 lakhs in a year can attract a fine. The purchase and sale of cash property of more than 30 lakhs can be investigated.
Can’t pay more than 2 lakh in cash to buy anything. If you want to do this, you will have to show PAN and Aadhaar here too.
Transaction above Rs 1 lakh at a time with credit-debit card can investigated.
An amount of more than 2 lakhs cannot be taken from a relative through cash in a day, this work will have to be donethrough the bank again.
You cannot take a loan above Rs 20,000 in cash from anyone else.
Individuals depositing Rs 10 lakh or more in a savings account during a financial year will have the transaction reported to the income tax authorities by the bank. TDS will be levied on cash withdrawals exceeding certain limits. Failure to establish the source of income for cash deposits may result in taxation at a high rate. In the case of cash deposits due to cash receipts, penalties may apply. Cash loans exceeding Rs 20,000 are subject to penalties. The article, penned by CA Jigar Mansatta, advises individuals to consider these scenarios before depositing or withdrawing cash.
According to Income Tax Act, some of the transactions are treated as specified financial transactions i.e. if, during a particular financial year, any person is depositing cash aggregating Rs 10 lakh or more in a saving account then the bank will be required to report such transaction. The limit of Rs. 50 lakh is applicable for current account holders.
It is noteworthy for every individual that though the government is not levying any tax on the deposit of hard-earned money of individuals, if the transaction is done above the specified limit during the financial year then such transaction will be reported by banks as a specified financial transaction to Income Tax authorities.
In case of withdrawal of cash, as per section 194N of Income Tax Act, 1961; TDS will be deducted as:
2% in excess of Rs 1 crore in financial year (If ITR has been filed for 3 consecutive years)
Many times it may happen that person is required to file returns of income but has not filed or the income of such person belongs to a specified exemption limit. In such cases, if the person is depositing cash in a bank account then the income tax authority can issue notice to such person with reference to section 68 of the Income Tax Act. If the person has failed to establish the source of income then such income is taxed at the rate of 60% along with a 25% surcharge and 4% cess.
In case a person is covered under section 44AD/44ADA (Presumptive scheme of taxation for certain assesses for specified business): The assessee is not required to maintain books of account and up to the turnover declared by the assessee in the return of income, the assessee cannot be punished for such deposits. However, the department has the right to question the deposits which has no nexus with business.
It is a well-established position of law that in such cases if a person proves the genuineness of the transaction then only the profit component of such transaction will be taxable.
Taxability in case where cash deposited in bank is on account of cash receipts
According to section 269ST of the Income Tax Act, if a person is receiving Rs. 2 lakh in cash during a particular year or in respect of a particular transaction then the person receiving such cash will be penalised as per section 271DA where penalty is equivalent to the amount of cash receipt.
Cash receipts may be on account of withdrawals which are previously made by the assessee or on account of exempted income earned by the assessee in such cases if the assessee is receiving notice from income tax then the assessee can present that cash deposited is on account of previous unutilised withdrawals or from exempted income.
Taxability in case where cash deposit is on account of cash loans
As per sections 269SS and 269T of the Income Tax Act which deals with the acceptance and repayment of cash loans; the assessee is not allowed to accept or repay cash loans which are exceeding Rs 20,000 during a particular year. In case of violation, a penalty is levied as per sections 271D and 271E which is equivalent to the amount of cash loan accept or repaid.
For instance, the assessee is engaged in a business which is an eligible business under section 44AD; during the year assessee has deposited Rs 29 lakh out of which the assessee claims Rs 23 lakh as revenue from business income during the year. Assessee has withdrawn cash of Rs 8 lakh and has accepted Rs 3 lakh from a person in respect of a particular transaction.
As the cash deposit amount is Rs 29 lakh, it can be reported as a specified financial transaction if the person has deposited such an amount in a savings account. As only Rs 23 lakh is claimed as revenue, the assessee can be asked to explain the source of income for the remaining Rs 6 lakh, which can be explained that such has been deposited from an unutilised withdrawal amount.
Further, the assessee will also be required to note that as turnover is exceeding Rs 20 lakh, GST registration will also be required in case it is not taken revenue amount will be treated as Gross Amount (i.e. inclusive of GST amount). No TDS will be deducted from the amount withdrawn as the withdrawal amount is less than the specified limits of section 194N. As the assessee has violated section 269ST by accepting Rs 3 lakh from a person in respect of a particular transaction, a penalty to that extent can be levied on him.
Before depositing or withdrawing any amount of cash every assessee shall consider the above scenarios which explain when legal action or tax liability is inevitable.
The article has been written by CA Jigar Mansatta.
Impact of High-Value Cash Transactions on Income Tax Scrutiny: The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.
The department employs advanced data analytics tools to detect disparities between declared income and incurred expenses. It can cross-check information from diverse sources such as bank statements, property records, investment details, and travel records to construct a comprehensive financial profile of individuals. Apart, it also can collect information from external sources such as employers, travel agencies, and stock exchanges to validate income sources and pinpoint possible discrepancies.
This degree of scrutiny proves valuable in suspected cases of tax evasion, enabling the department to initiate scrutiny assessments, issue notices, and conduct inquiries directly to accumulate evidence and recover taxes. Below is a compilation of common transactions that could trigger a tax notice, even when conducted in cash:
Depositing large amounts in cash in savings accounts
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. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.
Surpassing the ₹10 lakh limit doesn’t inherently suggest tax evasion, but it does prompt scrutiny from the Department. Explaining the source of the deposited funds becomes necessary, particularly if it doesn’t align with your declared income. If the explanation is considered unsatisfactory or if discrepancies arise in your tax returns, you could potentially face additional inquiries or penalties.
The ITD’s evaluation is also influenced by the intended use of the deposited funds. For instance, placing business income into a personal account could lead to concerns. Your comprehensive financial profile, encompassing income sources, expenses, investments, and other significant transactions, is taken into account by the ITD. Ensuring compliance is essential; maintaining accurate records and aligning your tax returns with your income and expenses is crucial to prevent unwarranted scrutiny.
Fixed deposits made with cash
Given the recent uptick in fixed deposit (FD) rates, these have become increasingly appealing choices for investors, especially for those in search of a steady and predictable income. The existing limit for reporting cash deposits to the ITD is ₹10 lakh within a single financial year (April 01 to March 31), irrespective of the purpose, including fixed deposits. It is crucial to take note of multiple deposits across different bank accounts. Even if you divide the cash deposit into smaller amounts across various accounts, any combined sum surpassing ₹10 lakhs will be brought to the attention of authorities.
Surpassing the limit doesn’t inherently indicate tax evasion, but it does attract the ITD’s attention, necessitating an explanation for the source of the funds. This scrutiny applies to any fixed deposit exceeding ₹10 lakhs.
The ₹10 lakh limit applies to the cumulative value of your FD holdings across all accounts and financial institutions, not solely to the individual deposit amount. Similar to cash deposits, surpassing this threshold may trigger inquiries regarding the source of funds, particularly if it doesn’t align with your declared income.
Purchases of shares, mutual funds, and bonds made in cash
Investing in bonds, shares, mutual funds, and debentures with cash transactions could result in an income tax notice if the investment surpasses a threshold of ₹10 lakh. Digital transactions, on the other hand, leave behind an online trail for both investors and the ITD alike.
There is no explicit rule mandating automatic scrutiny for cash payments towards credit card bills, irrespective of the amount. However, if you make a cash payment for a monthly credit card bill exceeding ₹1 lakh, the department automatically seeks information about the source of funds.
Surpassing any high-value transaction threshold, which includes cash payments, could initiate general scrutiny by the ITD. This examination is designed to uncover possible disparities between your declared income and expenses and is not specifically focused on credit card bill payments.
Cash payments related to properties
In India, when acquiring a property valued at over ₹30 lakhs, the ITD mandates the buyer to disclose the origin of the funds utilized for the purchase. This measure is implemented to counteract tax evasion and prevent money laundering activities.
The existing threshold for compulsory declaration of the source of funds is ₹50 lakhs for property acquisitions in urban areas and ₹20 lakhs for rural areas. Nevertheless, certain states may enforce more stringent thresholds, hence it is advisable to verify the specific regulations applicable in your region.
You have the option to declare the source of funds by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property purchase value is below the threshold, the Department retains the authority to request the source of funds if there are suspicions of discrepancies in your income or other transactions. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.
To address an ITD notice concerning high-value cash transactions, it is essential to possess sufficient documentation substantiating your assertion about the source of funds. This documentation may include bank statements, investment records, or inheritance papers.
If you are uncertain or have concerns regarding the declaration of the source of funds, it is advisable to seek advice from a qualified tax advisor for personalized guidance. Upholding transparency and adhering to tax regulations is essential for prudent financial management and mitigating potential legal complications.
269ST.No person shall receive an amount of two lakh rupees or more—
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed]:
Provided that the provisions of this section shall not apply to—
(i) any receipt by—
(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(ii) transactions of the nature referred to in section 269SS;
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
Explanation.—For the purposes of this section,—
(a) “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS;
(b)”co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the explanation to section 269SS.
The Central Board of Direct Taxes has prescribed other electronic modes to provide for the followings as an acceptable electronic mode of payments–
(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money)Aadhar Pay”͖
For this purpose, a new Rule 6ABBA with the heading ‘Other electronic modes’ is introduced the Income Tax Rules, 1962. This rule has been given a retrospective effect and will come into in force from 01- 09-2019 even though the notification was issued on 29-01-2020.
KEY POINTS IN SEC 269ST
1. Restriction is only on the person receiving money and not on the person paying money:
The restriction u/s 269ST is only on receipt of money and not on payment of money.
Therefore, penalty u/s 271DA on violation of these provisions shall be leviable only on the person receiving money and not on the person paying the money.
2. Restriction is applicable on all the entities:
The restriction U/s. 269ST is applicable on all the entities (except those which have been exempted specifically as per the proviso).
In the section the word “Person” has been used for both payer and the receiver.
As per section 2(31), the word person is defined in inclusive manner to include individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial juridical persons
3. Applicable to receipts whether for business purpose, personal purpose or any other purpose:
The restriction is applicable irrespective of purpose of accepting amount i.e., whether business purpose or personal purpose or as a trustee, custodian etc.
However, these provisions are not applicable to the transactions of receiving money for loan, deposit or for transfer of immovable property because there are already separate provisions restricting receipt of money in cash etc. for these purposes. The limit for accepting money for those purposes in cash etc. is 20,000/- only.
4. Character of Receipt Irrelevant
The character of receipt is irrelevant i.e. exempt income / taxable income etc
5. Applicable to receipts whether with or without consideration:
The restriction is applicable irrespective of the fact that whether the receipt is with or without consideration. In case of receipt of money without consideration in contravention of Section 269ST, there will be dual impact, one charge of tax u/s. 56 (in specific cases) as well as levy of penalty u/s. 271DA.
Gift in cash (Even though gift received from relative, according to provision of section 56(2)(vii) of the I.T.Act,1961, is exempted but if the amount of Gift of Rs 2 Lakhs or more is received from relative in cash w.e.f 01.04.2017 assessee has to bear penalty u/s 271DA for contravention of this section 269ST.
6. PAN not relevant
It is irrelevant whether the person receiving the cash has a PAN (Permanent Account Number) or not.
7. Search & Seizure
It is not necessary that the restriction of Receipt of Rs 2 Lakhs or more is to be based on the entries in books of account alone.
An entry or record found during search under section 132 or survey under section 133A may also show that the recipient has received more than the specified sum in non permissible mode.
A. NO PERSON SHALL RECEIVE AN AMOUNT OF TWO LAKH RUPEES OR MORE IN AGGREGATE FROM A PERSON IN A DAY
The first clause of the section has restricted to any person for not to receive an amount of Rs. 2 Lakh or more from a person in a day otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here purpose of the payment is irrelevant. The main focus is ‘from a person’and ‘in a day’.
Now a question arises what is a meaning of a day. A legal day commences at 12 o’ clock midnight and continues until the same hour the following night. (PrabhuDayalSesmavs State of Rajasthan, AIR 1986 SC 1948)
The restriction is applicable even if the different receipts are in relation to distinct transactions entered into on same day or different days. This section will be violated if following four pre-requisites are fulfilled:
i) There is single payer
ii) There is a single receiver.
iii) The payment is in single day.
iv) The amount received by the person in cash is Rs. 2 Lakhs or above.
The payment may be towards two separate invoices of different dates and each invoice below Rs. 2 Lacs, but the person cannot receive Rs. 2,00,000 or more in cash from a person in aggregate in a single day. We shall understand this with the help of following examples:
Example 1:ABC & Co. issued invoice of Rs. 1,60,000 to Mr. Bhushan on 15/04/2021 and another invoice of Rs. 1,25,000 on 16/04/2021. Can ABC & Co receive the payment of Rs.2,85,000 in cash/ bearer cheque on 17/04/2021?
No, as the aggregate of both the invoices exceeds Rs. 2,00,000; ABC & Co. cannot receive the whole amount in cash/ bearer cheque. Only amount upto Rs. 1,99,999 can be received in cash/ bearer cheque mode in a single day.
Example 2Suppose in above example, Rs 1,80,000 is received in cash from Mr. Bhushan and balance Rs. 1,05,000 is received from Mrs. Bhushan (Mr. Bhushan’ wife) on 17/04/2021. Is there any violation of law?
There is no violation of law in this case. ABC & Co. can receive the amount in cash from 2 different persons as the first limb restricts receiving cash of Rs. 2 lakh or more from ‘a person’ in a day.
Example: ABC& Co. issued following invoices and received following payments:
Customer
X
Y
Z
Bill No. 001
2,50,000
1,50,000
1,10,000
Bill No. 002
–
30,000
65,000
Bill No. 003
–
–
45,000
Total
2,50,000
1,80,000
2,20,000
Total cash receipts in a single day
2,50,000
1,80,000
2,20,000
Whether sec 269ST violated
Yes
No
Yes
Penalty Amount
2,50,000
Nil
2,20,000
B. IN RESPECT OF A SINGLE TRANSACTION
No person shall receive an amount of two lacs rupees or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account . It is to be noted that only the transaction is to be seen. Recipient is single person but payer could be single or multiple persons and payment could be in a single day or spread over many days.
This part of the section restricts receipt of Rs. 2,00,000 or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here the major focus is on ‘single transaction’. The number of installments or parts in which payment is made is irrelevant. Further, here word ‘a person’ is not used. Therefore, the recipient cannot receive Rs.2,00,000 or more in cash in a single transaction even if different persons are making payment. However, if the each of invoice amounts are below Rs. 2 Lakh, this provision may not be contravened. The pre-requisites for section to be violated are:
i) Single Receiver
ii) The cash payment relating to a particular transaction is Rs. 2,00,000 or more.
If the parties try to split their payments, such that one transaction is given effect to over multiple days like making payments of Rs. 10,000 on different dates in respect of a single transaction, then obviously it will not fall under first clause as aggregate is out of question being payments received on different dates but is covered by second clause. It is to be noted that if a single transaction is Rs.2,00,000/-or more, then the payment can be received in cash only upto the amount of Rs.1,99,999/-.It can be received in one instalment or by splitting the amount of Rs.1,99,999/-in instalments of Rs.10,000/-or more.
Example 3. M/s Lotus Chemicals issued invoice of Rs. 7,50,000 to their customer on 19/12/2021. The customer intends to make payment in cash in 10 weekly installments of Rs. 75,000 each. Whether M/s Lotus Chemicals can accept the above proposal?
Ans. M/s Lotus Chemicals cannot accept the above proposal as the cash receipts (though on different dates) are towards a single transaction and exceeds Rs. 2 Lakh. It is further to be noted that M/s Lotus Chemicals can receive two instalments of Rs.75,000/-in cash and Rs.49,999/- in cash and balance amount in non-cash mode.
Example 4.Mr. Gupta bought car of Rs. 3,50,000 on 15/03/2021. The car seller receives Rs. 1,80,000 from Mr. Gupta and Rs. 1,70,000 from his son. Whether Sec 269ST has been violated?
Ans. The car seller has violated the section as the total cash receipt relating to a particular transaction (sale of car in this case) exceeds Rs. 2,00,000. It is immaterial that the none of the payer has paid Rs. 2 Lakh or above. The recipient can receive upto Rs.1,99,999 in cash and balance through account payee cheque/ draft or ECS.
Example 5:M/s ABC & Co. sold a machinery for Rs. 6,00,000 to 3 different persons X, Y and Z
Particular
X
Y
Z
Sale Amount
6,00,000
6,00,000
6,00,000
Cash Receipt on 13/10/2021
2,50,000
1,90,000
–
Cash Receipt on 20/10/2021
–
1,90,000
1,50,000
Receipt by account payee cheque
3,00,000
2,20,000
2,00,000
Receipt by RTGS
50,000
–
2,50,000
Total cash Receipts
2,50,000
3,80,000
1,50,000
Whether Sec 269ST violated
Yes
Yes
No
Penalty u/s 271DA on M/s ABC & Co.
2,50,000
3,80,000
Nil
CLARIFICATIONS IN RESPECT OF SECTION 269ST OF THE INCOME-TAX ACT,1961 – CIRCULAR NO. 22/2017 DATED 03.07.2017
With a view to promote digital economy and create a disincentive against cash economy, a new section 269ST has been inserted in the Income-tax Act, 1961(the Act) vide Finance Act, 2017. The said section inter-alia prohibits receipt of an amount of two lakh rupees or more by a person, in the circumstances specified therein, through modes other than by way of an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Penal provisions have also been introduced by way of a new section 271DA, which provides that if a person receives any amount in contravention to the provisions of section 269ST, it shall be liable to pay penalty of a sum equal to the amount of such receipt.
Subsequently, representations have been received from non-banking financial companies (NBFCs) and housing finance companies (HFCs) as to whether the provisions of section 269ST of the Act shall apply to one instalment of loan repayment or the whole amount of such repayment.
In this context, it is clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.It has been clarified that for loan repayment to NBFC/HFC, each installment of repayment shall constitute as a single transaction and all the installments paid for loan shall not be aggregated for the purpose of Sec 269ST. In other words, repayment of loan to NBFC/HFC can be in cash if each installment is less than Rs. 2,00,000. However, other transactions related to NBFC/ HFC will still be covered by this section like cash receipt of down payment at time of sale/ financing of any goods or receipt from sale of repossessed goods etc.
C. IN RESPECT OF TRANSACTIONS RELATING TO ONE EVENT OR OCCASION FROM A PERSON
This clause attempts to target transactions scattered over different days but relating to a single event or occasion. Here major focus is ‘one event or occasion’ and ‘a person’. Pre-requisites for attraction of this section shall be:
i) Single Receiver
ii) Single Payer
iii) Cash payment relating to single event/ occasion is Rs. 2 Lakhs or more.
From the above it is interesting to note that in clause (c) of Section 269ST of Income Tax Act the words “from a person” have been used. Due to this now the language has become that “No person shall receive an amount of Two lakh rupees or more in respect of transactions relating to one event or occasion from a person”. In cases where there are more than one transaction and they are related with one event or occasion.
The entity will fall in clause (c) and in such a situation, separate limit will become available for different persons in a joint transaction.
This clause seeks to cover all receipts from a person in relation to transactions relating to one event or occasion such as reimbursement, marriage, birthday, anniversary, functions by religious bodies like satsangs, dharamsamelans, exhibitions or the like. This may include payments made in respect of catering, decoration, tents, pandal, sound, rent of resort etc. To illustrate, marriage is an event and there may be several functions relating to it like ring ceremony, haldi ceremony, bangle ceremony, shagun, wedding party, reception etc. All these functions are related to a single event. Therefore, the limit of Rs. 2 Lakh will be for the entire marriage and not for each function.
For example, if for a marriage there are 3 different bills of Rs. 1 lakhs each (total Rs. 3 lakhs), and all the three bills are in the name of three different persons say one bill (garden on rent for marriage reception,) of Rs. 1 lakhs is in the name of the person who is being married, second bill (given tent house services) is in the name of father of that person for Rs. 1 lakhs and the third bill (for decoration) is in the name of the mother of that person for Rs. 1 lakhs. Then in such a situation entire Rs. 3 lakhs can be paid in cash etc. mode i.e., Rs. 1 lakh by the person being married, Rs. 1 lakhs by the father and Rs. 1 lakhs by the mother. Even if all the bills are in the joint names of three persons then also the payment can be made in the above manner.
The definition of the words ‘event’ or ‘occasion’ has not been given in section 269ST. Further, no clarification has been given by the CBDT through any circular etc. Similarly, no direct judicial decisions are presently available on the scope of the above words. Therefore, lot of confusion has got created regarding the meaning and scope of the above two words. Further the mysterious words which have created hue and cry that is word occasion/event, to bring within the fold of the law receipt of 2 lakh rupees or more in respect of transactions relating to one event or occasion from a person, have been subject matter of unending professional and academic debate . The law lexicon at page 1842 has clarified the world event as “the consequence of anything, the issue, conclusion and that in which an action, operation, or series of operations, terminates” and word occasion has been defined at page 3562 as “something that produces an effect or brings about an event”. When two definitions of word occasion and event are analysed and compared hand-in-hand in conjunction, it will be glaring that occasion gives rise to event and various occasions can also be included in any event.
Example 6Mr. Puneet receives following gifts on his marriage:
S.No.
Particulars
WhetherSec 269ST Violated
Reasons
1
Receives shagun of Rs.1,000 each in cash from 220 persons
No
None of the person gifted Rs.2 Lakh or more in cash.
2
Receives shagun of Rs.1,11,000from his uncle on the marriage day and Rs.1,51,000 on the day of reception.
Yes
As the total cash receipt from a person relating to occasion‘marriage’exceedRs.2 Lakh
3
His uncle gifted Rs. 1,70,000 to him and Rs. 81,000 to his mother in cash
No
No person has received Rs.2 Lakh or more in cash.
In case of 2nd and 3rd limb of sec 269ST the word ’transaction’ has been used
(a) in respect of a single transaction; or
(b) in respect of transactions relating to one event or occasion from a person
However, for the purposes of section 2(xxiv) of the Gift-tax Act, 1958, it has been held that the term ‘transaction’ refers to a bilateral transaction but not to a unilateral transaction. [Dr. A. R. Shukla v. CGT [1969] 74 ITR 167 (Guj.); CGT v. Jer Mavis Lubim off [1978] 114 ITR 90 (Bom.), CGT v. Ebrahim Haji UsufBotawala [1980] 122 ITR 62 (Bom.)]. Hence, a gift may not be covered under 2nd and 3rd limb of sec 269ST of the Act.
Following the above judgments, gift is a unilateral act and not a transaction. Therefore, in the above table, in case 2, where shagun of Rs.1,11,000 is received from his uncle on the marriage day and Rs.1,51,000 on the day of reception, there may not be violation of sec 269ST. However, the first limb i.e. in aggregate from a person in a day shall continue to apply in case of gifts.
Example 7M/s Tania Event Managers arranged a marriage function in February 2020.
Date
Particulars
Case 1
Case-2
Case-3
Case-4
22/02/2021
Invoice for ‘Ring Ceremony’
1,80,000
70,000
1,80,000
1,80,000
23/02/2021
Invoice for catering on ‘Marriage Day’
1,90,000
60,000
1,90,000
1,90,000
23/02/2021
Invoice for decoration on ‘Marriage Day’
45,000
45,000
45,000
45,000
Total of Invoices
4,15,000
1,75,000
4,15,000
4,15,000
01/03/2021
Received cash from Bride’s father
1,75,000
1,75,000
1,75,000
1,75,000
03/03/2021
Received cash from Bride’s father
60,000
–
–
25,000
04/03/2021
Received cash from Bride’s brother
–
–
65,000
–
05/03/2021
Received payment by credit card/ account payee cheque
1,80,000
–
1,75,000
2,15,000
Total cash payments
2,35,000
1,75,000
2,40,000
2,00,000
From Bride’s father
2,35,000
1,75,000
1,75,000
2,00,000
From Bride’s brother
–
–
65,000
–
Violation of sec 269ST
Yes
No
No
Yes
Penalty u/s 271DA
2,35,000
Nil
Nil
2,00,000
SUMMARY OF SEC 269ST
CLAUSES
Conditions
Irrespective of
i) in aggregate from a person in a day
Number of persons- 1Number of Days-1
Number of transactions
ii) in respect of a single transaction
Number of transactions- 1
Number of personsNumber of days
iii) in respect of transactions relating to one event or occasion from a person
Number of persons-1Number of event/occasion- 1
Number of daysNumber of transactions
E. EXEMPTIONS
The above provisions are not applicable in the following cases :-
(1) Receipt by Government;
(2) Receipt by any banking company, post office savings bank or co-operative bank
(3) Transactions of the nature referred to in section 269SS i.e. acceptance of loans/ deposits/ specified advance.
(4) Persons/receipts notified by government:-
Receipts (cash withdrawals) by any person from bank, cooperative bank or post office savings bank
Receipt by business correspondent on behalf of banking company or cooperative bank as per RBI guidelines.
Receipt by white label ATM operator from retail outlet sources on behalf of banking company or cooperative bank.
Receipt from an agent by an issuer of prepaid payment instruments.
Receipt by company/ institution issuing credit cards against bills raised in respect of one or more credit cards.
Receipt exempt u/s 10(17A) i.e. any award from state/central government
E. Penalty u/s 271DA
Penalty for failure to comply with provisions of section 269ST
(1) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt: Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.
If any person violates sec 269ST, then penalty shall be levied @ 100% of such receipt.
Example: If any person issues invoice for Rs. 5,00,000 and receives Rs. 3,00,000 in cash and Rs. 2,00,000 by cheque. Then penalty of Rs. 3,00,000 shall be levied.
Section 271DA has been inserted w.e.f. 1.4.2017 to provide for penalty for failure to comply with provisions of section 269ST. Essentially, the section provides as follows –
(a) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt.
(b) Any such penalty shall be imposed by the Joint Commissioner.
(c) The penalty shall not be imposable if such person proves that there were “good and sufficient” reasons for the contravention.
Section 271DA states that if a person receives any “sum” as against section 269ST using the expression “any amount”. At the same time, subsequently, in section 271DA it is provided that the penalty shall be equal to “the amount” of the receipt. This suggests that the term “sum” and “amount” have been used interchangeably
It is to be noted that the penalty shall not be imposable if such person proves that there were “good and sufficient” reasons for the contravention The words “good and sufficient reasons” only mean “appropriate” or “suitable” or “satisfactory” or “fit” and “enough” or “adequate” reasons for cancelling the registration. To illustrate, if the payer’s cheque has been returned unpaid due to insufficient funds, the recipient may not be inclined to again take a cheque from him and may not want to even wait for a wire transfer or draft from the payer. In such circumstances, if he accepts cash in lieu of his debt, it may be possible to argue that there were good and sufficient reasons for receiving cash.
Time limit for commencement of penalty proceeding It appears that there is no express time limit for initiation of penalty proceedings. Now, Courts have held that where there is no period of limitation, the power must be exercised in reasonable time.
Hence, a view may be taken that depending on the facts, the penalty proceedings under section 271DA should commence within a reasonable period after the contravention of section 269ST.
Appeal against an order passed under section 271DA
Section 246A(1)(q) provides as follows: “(1) Any assessee or any deductor or any collector aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against …..
(q) …. an order imposing a penalty under Chapter XXI.:
Order U/S 271DA is an order under Chapter XXI. However, unless the recipient is an assessee, he cannot file an appeal against the penalty order u/s 246A of the Act.. To illustrate, suppose an agriculturist who is not liable to tax, receives the specified amount in respect of transactions other than those which are exempt. In such a case, can the agriculturist be regarded as an assessee within the meaning of section 246A?
According to one view, section 246A does not apply on account of the following reasons :
(a) Section 246A applies to penalty order on a person in his capacity of assessee. Here, the person penalized does not receive the penalty order in his capacity as an assessee. Hence, the order is not appealable.
(b) If the term “assessee” was to cover any tax payer then, there was no need to add the terms “tax deductor” or “tax collector” in section 246A. Even, a tax deductor or tax collector could be an assessee; but it was necessary to make a special reference to them only because the expression “assessee” did not cover defaults in other capacities such as “tax deductor” or “tax collector”.
(c) If there is no appeal against order by CIT(A), by parity of reasoning, there ought not be an appeal against the penalty order by the AO
There is no express prohibition against an appeal against an order under section 271DA. Applying the aforesaid principles of interpretation of `an appeal provision’, section 246A(1) has to be liberally construed and even if there is any doubt, it should be resolved in favor of the person on whom penalty is imposed. Accordingly, an appeal against the penalty order under section 271DA should be allowed
Q 1.Whether Sec 269ST applies to receipt of exempt income?
Ans.Yes, Sec 269ST applies to all types of receipts whether exempt or taxable except the receipts specifically notified by government. Therefore, section shall also apply to receipt of payment by farmers.
Q 2. Whether Sec 269ST applies to receipt of payment for personal purpose?
Ans. Yes, Sec 269ST applies to payments for personal purpose. There is no difference whether the receipt is for personal or business purpose or whether it is a revenue or capital receipt.
Q 3. What is the maximum amount of cash memo that can be issued?
Ans.Cash Memo can be issued up to Rs 1,99,999 (including taxes). Any cash memo above that will lead to contravention of this section. But the assessee has to follow the limits to issue cash memo under other laws.
Q 4. Can my customer deposit Rs. 2,00,000 or above in cash directly to my bank account?
Ans.No, the customer cannot deposit Rs. 2,00,000 or above in cash directly to my bank account because the section allows receipt of Rs. 2 Lakh or above only by account payee cheque/ draft or electronic clearing system through bank account. The Allahabad high Court has held in the case of Ajai Kumar Singh KhaldelialTS-35-HC-2020(ALL) that cash deposit in the bank account of supplier is disallowed u/s 40A(3) of the Act. The court held that depositing cash directly in the bank account of the supplier / beneficiary cannot be referred to as payment made through electronic clearing system, covered as an exception under Rule 6DDI(v); Observes that the term use of electronic clearing system through bank account” as stipulated in Rule 6DDI(v) would necessarily include the transaction of funds by electronic mode through clearing system i.e. through electronic mode of transfer such as NEFT, RTGS, IMPS, etc.; Opines that, Such transaction by depositing cash directly in the bank account of the beneficiary is not routed through any clearing house nor is the money send through electronic mode and therefore such a transaction in my considered opinion cannot be covered by Rule 6DDI(v) ”; On the same footing, a customer can’t deposit Rs.2,00,000/- or more in cash in the bank account of the seller.
Q 5. Will this section apply to introduction of capital by a partner to the firm?
Ans. The cash transactions are made in respect of introduction or withdrawal of capital from partnership firm by the partners and if the amount is Rs.2 lakhs or more, whether the said transactions will be covered by the provisions of section 269ST. There are different opinions in respect of such transactions. As per one school of thought, since the partnership firm and partners are distinct persons, the provisions of section 269ST are applicable. As per another school of thought, the partners and firm are same, as partnership firm is not a legal entity from partners. Under the Indian Partnership Act, a partnership has not been given any legal status. It is not a juristic person and the independent status given to the partnership firm under the Act has to be limited only for the purposes of that Act. Such a legal position becomes clear from the landmark judgment of the Supreme Court in CIT vs. R.M. Chidambaram Pillai [1977] 106 ITR 292. In this case, Supreme Court exclusively dealt with the concept of a partnership firm and quoted with approval a paragraph from Lindley on Partnership– “In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.” The Supreme Court has in its various judgments pointed out that the Indian law of partnership is substantially same in this regard. In another case Dulich and Laxmi narayan v. CIT [1956] 29 ITR 535, the Apex Court quoted with approval: “In some systems of law this separate personality or a firm apart from its members has received full and formal recognition, as, for instance, in Scotland. That is, however, not the English common law conception of a firm. English lawyers do not recognise a firm as an entity distinct from the members composing it.” The partners of the firm are collectively referred as partners and the amount withdrawn or introduced contains part of their own capital. Hence, the provisions of section 269ST are not applicable.
Thus, if we follow this view point, the partners cannot be considered as separate and distinct from their firm and any money provided by them to the firm cannot be taken as an independent transaction under the purview of Section 269ST of the Act.
Relying upon this decision, the High Court of Delhi in the case of CIT vs. Muthoot Financiers ITA No. 336, 338, 341 and 345 of 2002 dated 03.02.2015 has held that Section 269SS of the Act would not be violated when money is exchanged inter-se between the partners and the partnership firm.
Similar position applies to the receipt and payment of partner’s capital by partnership firm as held in the case of ITO vs. Universal Associates ITA No. 1349/Ahd/2010 dt. 17.06.2011as partner’s capital neither constitutes loan nor deposit.
Q 6. Will this section apply to introduction of capital by a sole proprietor?
Ans.No, this section will not apply to introduction of capital by a sole proprietor as the proprietor and his business concern are one and same person.
Q 7. Mr. Bajaj borrowed Rs. 4,00,000 in cash from Mr. Akash. Later he repaid Rs. 2,50,000 in cash. State the applicability of Sec 269SS, 269T and 269ST?
Ans. Mr. Bajaj has violated sec 269SS by accepting cash loan of Rs. 20,000 or more and penalty shall be levied u/s 271D on borrower (Mr. Bajaj). However Sec 269ST shall not be applicable even if amount exceeding Rs. 2,00,000 has been received from a person in a day as transactions covered by 269SS are out of ambit of Sec 269ST.
Regarding repayment of Rs. 2,50,000 in cash, Sec 269T has been violated by Mr. Bajaj as loan has been repaid in cash exceeding Rs. 20,000 and penalty shall be levied u/s 271E on the person who is making repayment (Mr. Bajaj).
Sec 269ST has been violated by Mr. Akash as he has accepted cash of Rs. 2,50,000 from a person in a day. Penalty u/s 271DA shall be levied on recipient (Mr. Akash).
Q 8. Will sec 269ST be applied on cash gifts, even if such cash gifts have been taxed u/s 56(2)(x)?
Ans.Yes, sec 269ST will be applied on cash gifts irrespective of the fact that whether such gifts have been taxed or not. A person cannot accept a cash gift of more than Rs. 1,99,999.
However, a person can receive different cash gifts of Rs. 1,99,999 or less from a person, provided the gifts do not form part of a single transaction and not related to single event/ occasion.
Q 9. X was hospitalized in DAC Hospital. The bill amount for treatment, testing charges, room rent and other charges was Rs. 3,50,000. What is the maximum amount hospital can receive in cash?
Ans. From the above it is interesting to note that in clause (c) of Section 269ST of Income Tax Act the words “from a person” have been used. Due to this now the language has become that “No person shall receive an amount of Two lakh rupees or more in respect of transactions relating to one event or occasion from a person”. In cases where there are more than one transaction and they are related with one event or occasion, the entity will fall in clause (c) and in such a situation, separate limit will become available for different persons in a joint transaction.
This clause seeks to cover all receipts from a person in relation to transactions relating to one event The hospital can receive up to Rs. 1,99,999 in cash and balance through modes allowed u/s 269ST. The reason being, the treatment of a patient is a single transaction and hence covered by clause (b). Even if separate invoices are issued for treatment, testing charges and other charges, then also it will be covered by clause (c) as curing/ treatment is a single event/ occasion. All the distinct transactions are related to this event.
Q 10. A person bought a car for Rs. 4,00,000 in an exchange offer. His old car was valued for Rs.2,50,000 and he gave Rs. 1,50,000 in cash? Whether sec 269ST contravened?
Ans:No, the section has not been contravened as the section applies only to cash component in the transaction. Therefore, section has to be applied net of exchange value. This is evident from the objective behind the insertion of section 269STwhich was explained by CBDT circular No. dated 15.02.2018 in para 77 as under
“77.1 In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.
It is evident that receipts in kind are not the intention of the law and cannot be regarded as receipt of amount within the meaning of section 269ST.
Q 11. One of the doubtful debtors, who was not clearing his dues suddenly camp up and offered to settle his account and pay Rs. 3,00,000 in cash. Whether money can be accepted in cash?
Ans. As per sec 269ST, cash of Rs. 3,00,000 from a person in a day cannot be accepted.
However, as per sec 271DA penalty may not be imposed if the recipient proves that there were good & sufficient reasons for the contravention. In this case, if the person has documentary proofs and evidences that the debtor was not clearing his dues and in past he was unable to recover the amount, penalty may not be imposed.
Q12.Whether the provisions of sec 269ST are applicable in the case of payment received from an agent?
Ans. To resolve this issue, we need to know whether the agent is representing recipient or representing the payer. In case, the agent is representing recipient, receipt from own agent is receipt from self. Section 269ST is not attracted. In case, the agent is representing the payer, receipt from agent of a payer is like receipt from payer. In this case provisions of section 269ST are attracted.
Now a question arises whether the provisions of sec 269ST are applicable in the case of payment received through an agent. In this connection it is to be noted that when your agent receives from a third party on your behalf, it tant amounts to receipt by you and sec 269ST is attracted and subsequent payment by agent to you is not a receipt and hence sec 269ST is not applicable.
Q13. If a person who holds a Power of Attorney (‘PoA’) of another person, pays Rs.1,50,000 in cash in his own capacity and another Rs. 1,50,000 in cash on behalf of the person who has issued the PoA, will the recipient be liable to penalty for receipt of Rs.3,00,000 in cash ?
Ans. a) Rule 6DD(k) provides that no disallowance under Section 40A(3) shall be made where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person
b) Applying the aforesaid principle, payment made in the capacity of holder of POA is different from the payment made in his own capacity. Therefore, Section 269ST does not apply as the cash paid in each circumstance does not exceed the limit of Rs. 2,00,000/-.
Q14.The provisions of Section 269ST will not apply to any receipt by Banking Company. In recent Payment Banking Licenses issued by RBI, the Banks are permitted to appoint agents who received cash from customers for deposition in Bank Accounts. Whether cash received by agents of Payment Banks will trigger Section 269ST.
Ans. It is pertinent to note that Section 269ST has specifically excluded any banking company, post office savings bank or co-operative bank from the applicability of S. 269ST.
Cash received by agents on behalf of the bank would partake the character of cash received by the bank since the agent represents his principal. It would be deemed that the payment was received by the banking company and hence section 269ST would not be applicable.
Conclusion:Sec.269ST would not apply to an agent receiving money on behalf of his principal being a banking company.
Q15.At the time of selling of immovable property, old furniture, geyser, AC, fridge etc are also sold to the buyer by way of an agreement separate from the sale deed. These assets are sold for total consideration of Rs. 2,50,000/- and cash is received. Whether 269ST would be violated?
Ans. Yes, this cash receipt would be in violation of Section 269ST and penalty under section 271DA would be levied. However, if these items are sold cumulatively with the sale deed of immovable property and no separate agreement is made for these items, then in such cases, Section 269SS would come into play and the limit of Rs. 20,000 would apply as against the limit of Rs. 2,00,000/-
Q16. Are provisions of section 269ST and 269T mutually exclusive?
Ans. The provisions of the section 269ST and 269T are mutually exclusive. Section 269T imposes obligation on the borrower and is restricted to loan and deposits while section 269ST imposes obligation on the recipient and covers all kinds of receipts whether loan, deposits or otherwise. To illustrate, let us take an example:
Case
Violation u/s 269T
Consequence
Borrower repays Rs. 50,000 in cash
Yes
Penalty under section 271E on the borrower.
Borrower repays Rs. 2,10,000 in cash
Yes
Penalty under section 271E on the borrower.Penalty under section 271DA on the recipient.
Q17.Mr.X purchased goods from Mr. Y worth Rs. 4,00,000 on credit basis, Mr. Y has dues payable to Mr. Z. Mr. X has dues receivable from Mr. Z. On the basis of internal arrangement between the 3 persons, Mr. Y receives payment from Mr. X by set-off of inter-company balances
Section 269ST restricts receipts otherwise than through specified modes. Whether settlement of debt by book entry are also restricted?
Ans. •A similar provision regarding loans and deposits exists in section 269SS and section 269T
Courts are divided as to whether receiving loans and repayments through journal entry attracts section 269SS or section 269T
Unfavourable ruling – Triumph International Finance (I) Ltd. 345 ITR 270 (Bom. HC) where loan/deposit has been repaid by merely debiting account through journal entries, it must be held that assessee has contravened provisions of section 269T
Favourable rulings – –
Worldwide Township Projects Ltd. (367 ITR 433) (Del. HC) Object of section 269SS is to prevent transaction in currency, it is not intended to affect cases where a debt or a liability arises on account of book entries
– Ajitnath Hi-Tech Builders (P.) Ltd. (92 taxmann.com 228 (Bom. HC) – SLP dismissed by SC There was reasonable cause to receive loan through journal entries. Non-compliance of section 269SS would certainly be a reasonable cause under section 273B for non imposition of penalty under section 271D Vardaan Fashion (38 ITR(T) 247) (Delhi Trib.)
Objective of the provision is to discourage cash receipts. Hence, going by the intent of the provision, it may be argued that receipts through journal entries are not covered by section 269ST.
Q18. Mr. A, received cash gifts in following manner –
– Rs. 2,25,000 each from his father and brother on a single day
– Rs. 1,50,000 each from his 10 friends on occasion of his marriage
Evaluate the applicability of section 269ST ?
Ans. Section 269ST, inter alia, states that –
“No person shall receive an amount of two lakh rupees or more
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account:”
Gift from father and brother – Rs. 2,25,000 each
Any sum received from relatives shall not be taxable u/s 56(2)(x)
Section 269ST provides that no amount shall be received in excess of Rs. 2 lakhs from a person on a single day otherwise than specified mode
Hence, cash gift from father and brother, though exempt u/s 56(2)(x), shall be liable for penalty u/s 271DA
Gift from friends – Rs. 1,50,000 each
Any sum received on occasion of marriage shall not be taxable u/s 56(2)(x)
Section 269ST provides that no amount shall be received in excess of Rs. 2 lakhs on an occasion from a person otherwise than specified mode
Since cash gift from each friend is less than Rs. 1,50,000 though on a single occasion, should not be liable for penalty u/s 271DA
Q 19. WHAT IS THE DIFFERENCE BETWEEN WORD ‘SUM’ AND ‘AMOUNT’?
ANS.269ST. No person shall receive an amount of two lakh rupees or more:-
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.
271DA.(1) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt:
From the study of above two sections, it is to be noted that the expression used in section in sec 269ST is “amount” and the word used in sec 271DA is “sum”. Now a question arises what is the difference between the word “amount” and “sum”. To resolve this issue, firstly we need to know the meaning of the words “amount” and “sum”.
MEANING OF ‘AMOUNT’
As per Black’s Law Dictionary – Sixth Edition:
The whole effect, substance, quantity, import, result, or significance.
The sum of principal and interest.
As per P Ramanatha Aiyar’s – Advanced Law Lexicon 3rd Edition:
“The substance, or result of a thing; the total or aggregate sum. Quantity; to come upto, resulting; equaling in effect.”
“A quantity of something, especially the total of a thing or things in number, size, value, or extent.”
As per Cambridge Dictionary http://dictionary.cambridge.org: “A collection or mass, especially of something that cannot be counted:”
MEANING OF ‘SUM’
As per Black’s Law Dictionary – Sixth Edition: “The sense in which the term is most commonly used is “money”; a quantity of money or currency ; any amount indefinitely, a sum, or a large sum. U .S. v. Van Auken, 96 U.S. 366, 368, 24 L.Ed. 852.”
As per P Ramanatha Aiyar’s – Advanced Law Lexicon 3rd Edition When used with reference to values, “sum” imports a sum of money. (See also 27 LJ Ex. 31; 7Ex. 58) A quantity or amount of money. [S.57(a)(1), T.P. Act (4 of 1882); S. 48(b), Indian Partnership Act (9 of 1932)]
As per oxford dictionary – https://en.oxforddictionaries.com : “ 1. A particular amount of money. 2. The total amount resulting from the addition of two or more numbers, amounts, or items. 3. An arithmetical problem, especially at an elementary level.
As per Cambridge Dictionary http://dictionary.cambridge.org: “an amount of money: the whole number or amount when two or more numbers or amounts have been added together:”
From the above definitions it is to be noted that the word “Sum” means “sum of money”. The word “Amount” may includes cash and kind. However it can be logically interpreted that per the Memorandum Explaining Clauses of the Finance Bill 2017 restriction under section 269 ST is put only on receipt of money and not on anything in kind .The heading given there is “ Restriction on cash transactions ” The relevant description given is that ” Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash. In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, Finance Bill 2017 proposed to insert section 269ST “. Budget Speech of Finance Minister on Finance Bill 2017 also says ” It is proposed to provide that no person shall receive payment or aggregate of payments of an amount of three lakh rupees or more ( Amendment to Finance Act 2017 reduced this limit from Rs 3 Lakh to Rs 2 Lakh ) ………………” Further penalty U/s. 271DA what will be the levied for contravention of Section 269ST. Section 271DA starts with “If a person receives any sum in contravention of the provisions of section 269ST………………….” Therefore, logically it can be inferred from those provisions that section 269ST is in respect of money only.
SEC 269ST RELAXATION ON CASH PAYMENT OF MORE THAN RS 2 LAKHS MADE TO HOSPITALS, DISPENSARIES, NURSING HOMES, COVID CARE CENTRES OR SIMILAR OTHER MEDICAL FACILITIES PROVIDING COVID TREATMENT :
CBDT Notification Generally, Section 269ST lays down that no person shall receive an amount of Rs. 2Lakhs or more in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. The Central Government, in exercise of powers conferred by clause (iii) of Proviso to Section 269ST of the Income-tax Act, 1961, hereby specifies Hospitals, Dispensaries, Nursing Homes, Covid Care Centres or similar other medical facilities providing Covid treatment to patients for the purpose of Section 269ST of the Income-tax Act,1961 for payment received in cash during 01.04.2021 to 31.05.2021, on obtaining the PAN or AADHAAR of the patient and the payee and the relationship between the patient and the payee by such Hospitals, Dispensaries, Nursing Homes, Covid Care Centres or similar other medical facilities.
MINISTRY OF FINANCE (Department of Revenue) (Central Board Of Direct Taxes) notification New Delhi, the 7th May, 2021 (INCOME-TAX) S.O. 1803(E).—The Central Government, in exercise of powers conferred by clause (iii) of Proviso to Section 269ST of the Income-tax Act, 1961, hereby specifies Hospitals, Dispensaries, Nursing Homes, Covid Care Centres or similar other medical facilities providing Covid treatment to patients for the purpose of Section 269ST of the Income-tax Act,1961 for payment received in cash during 01.04.2021 to 31.05.2021, on obtaining the PAN or AADHAAR of the patient and the payee and the relationship between the patient and the payee by such Hospitals, Dispensaries, Nursing Homes, Covid Care Centres or similar other medical facilities. [Notification No. 56/2021/F. No. 225/58/2021-ITA.II]PRAJNA PARAMITA, Director.
INTERPLAY OF SEC 40A(3) VS SEC 269ST
As per sec 40A(3), if any payment is made by an assessee to a person in a single day above Rs.10,000, otherwise than by account payee cheque/ draft or ECS through bank account, then expenditure shall be disallowed i.e the expenditure shall not be allowed as deduction. For this reason, generally cash payments by debtors to any person are made up to Rs.10,000 only per day. However, this does not bind the recipient to accept only up to Rs. 10,000 per day from any customer. If a person makes a payment in contravention of sec 40A(3), then the whole of the expenditure will be disallowed. This section is applicable to the person who is making the payment of expenditure which claimed as deduction u/s 30 to 37.
It is to be noted that if a person receives the payment exceeding Rs.10,000/-incash ,then the provisions of sec 269ST will not be applicable in his case if the payment so received is less than Rs.2,00,000/-.From the study of clause (a) of sec. 269ST ,it is clear that a person cannot receive Rs. 2,00,000/- or more in a single day. It means that a person can receive Rs. 1,99,999/- in cash in a single day. But if we go through the provision of sec. 40A(3) of the Act, then we came to know that no payment of any expenditure can be made in cash for an amount exceeding Rs. 10,000/- in a single day otherwise the whole of the expenditure will be disallowed. In this connection, we see that there is no ban on the person receiving the payment upto Rs. 1,99,999/- in cash . It is the person who is making the cash payment exceeding Rs. 10,000/- of an expenditure will have to suffer. Sec 40A(3) follows only one way traffic and it affects only the payer and not the receiver upto the receipt of less than Rs.2 lacs in cash. When we see both of these sections, we come to know that Sec. 269ST is applicable to receiver and Sec. 40A(3) is applicable to the person who is making the payment of expenditure. There is a one way traffic on both the sections.
The second circumstance relates to a transaction. It envisages that no single transaction should exceed the specified limit. Although each of such receipts on daily basis are within the prohibited limit and not covered by the first circumstance, such receipts would fall under the prohibited category as they pertain to a single transaction. This is a very important condition which prevents circumventing the limit by splitting it over several days. In this connection, Now we came to clause (b) of Sec. 269ST which deal with only a single transaction. It is to be noted that when there is a single transaction of Rs. 2,00,000/- or more, then against this transaction only payment of Rs. 1,99,999/- can be received in cash. This payment of Rs. 1,99,999/- may be lump sum or by splitting the payment over a number of days of Rs. 10,000/- per day to avoid the disallowance u/s Sec 40A(3) of the Act. In this connection,it is important to compare these provisions with those of section 40A(3) of the Act wherein no such condition is imposed even after certain amendments in the sec 269ST. Therefore, it is a general practice to make payments of Rs 10,000 or less on several days in relation to a single transaction so as to remain outside the purview of section 40A(3).
If we compare and study clause (a) and clause (b) of Sec.269ST, then we come to know that if any transaction is of Rs. 2,00,000/- or more, then the total payment Rs.1,99,999/- can be received in cash against such transaction, the balance payment will have to be received in non cash mode to avoid the penal provisions of sec269ST of the Act.
Q19.Ram purchases a tractor of Rs. 5,00,000 and makes a payment of Rs. 1,99,999 in cash and balance by account payee cheque on date of purchase of the tractor. Whether the payment made by Ram is subject to any penal action.
Ans. If the person making the payment is not taking the benefit of depreciation, then he can make the payment of Rs.1,99,999/-in cash. If the person purchasing tractor wants to claim depreciation on the the tractor, then he can’t make cash payment exceeding Rs.10,000/- in a single day. If he makes cash payment exceeding Rs.1.0,000/-in cash in a single day, then the payment so cash paid will not be considered as a part of actual cost as per the provisions of sec43(1) of the Act. If such person wants to make cash payment by splitting over a number of days, then he can pay Rs.10,000/- for a single day and total cash payment should not exceed Rs.1,99,999/-in total for the purchase of the tractor. It is further to be noted that balance amount of Rs.3,00,001/-must be made by non cash mode. If the total payment is made in cash Rs.1,99,999/- and balance in non cash mode of Rs.3,00,001/-,then there is no penal action for Ram.
THE ABOVE PROVISIONS OF SEC 40A(3) AND SEC 269ST ARE VERY WELL EXPLAINED IN THE FOLLOWING TABLE.
Invoice Date
Invoice Amount
Maximum Daily Cash Payment by BuyerSec 40A(3)
Aggregate Maximum cash which can be Received by seller against this Invoice (sec 269ST)
S. No. 31(ba) – Particulars of each receipt in an amount exceeding the limit specified in section 269ST (i.e, 200000 for AY 2018-19, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, during the previous year, where such receipt is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account.
S. No. 31(bb) – Particulars of each receipt in an amount exceeding the limit specified in section 269ST (Rs.2,00,000/- for AY 2018-19), in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasions from a person, received by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year.
CLAUSE 31 (bb)
Particulars of each receipt made in an amount exceeding limit specified in section 269t in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a perason otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year
NAME OF THE PAYER
ADDRESS OF THE PAYER
PAN
AMOUNT OF RECEIPT
S. No. 31(bc) – Particulars of each payment in an amount exceeding the limit specified in section 269ST (i.e, Rs. 200000/- for AY 2018-19, in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a person, during the previous year, where such payment is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account.
Sub clause (ba) and (bb) were for receipt of money in contravention of s. 269ST. This clause is for reporting of PAYMENT of money in contravention of s. 269ST. There is no penalty on the assessee u/s 271DA for payment, as the same is only on the receiver, yet this information is sought by the department to take appropriate action on the receiver. However, if the payment is related to expenditure, then the same will also be mentioned in clause 21(d) i.e. disallowance u/s 40A(3) or 40A(3A).
CLAUSE 31 (bc)
Particulars of each payment made in an amount exceeding limit specified in section 269t in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a perason otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year.
NAME, ADDRESS AND PAN (IF AVAILABLE) OF THE PAYEE
NAME OF TRANSACTION
AMOUNT OF RECEIPT
DATE OF RECEIPT
S. No. 31(bd) – Particulars of each payment in an amount exceeding the limit specified in section 269ST (Rs.2,00,000/- for AY 2018-19), in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasions to a person, paid by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year.
The note under sub-clauses 31(ba), (bb), (bc) and (bd) does not specifically refer to receipt by or payment to Government. Considering the provisions of the section, particulars of the payments made to the government need not be included under sub-clauses (bc) and (bd) and a suitable note may be given to the effect that details of payments made to Government have not been included in the particulars.
Section 269ST does not distinguish between receipt on capital account and revenue account. Once the receipt or the payment, as the case may be, exceeds the limit specified in section 269ST, the particulars of such transactions will have to be reported under these clauses
The tax auditor will have to exercise care and caution while arriving at the particulars of receipts or payments pertaining to a single transaction or relating to a single event or occasion. The tax auditor will need to link all receipts or payments, as the case may be, otherwise than by the modes specified in this section received/made in respect of a single transaction and verify if the aggregate amount exceeds the limits specified in section 269St
INTERPLAY BETWEEN SECTIONS 269SS, 269ST & 269T
Particulars
269SS
269T
269ST
Scope of thesection
loans, deposits and specified sum
loans or deposits
Any payment
Burden of thesection is on
Person taking or accepting
Person repaying
Person receiving any payment
Monetary threshold for the Section
20,000
20,000
2,00,000
Exceptions
This section does not apply to :(i) Government;(ii) any banking company, post office savings bank orcooperative bank;(iii) any corporationestablished by a Central, State or Provincial Act;(iv) any Government company(v) such other notified institutions
This section does not apply to :(i) Government;(ii) any banking company, post office savings bank or cooperative bank;(iii) Any corporationestablished by a Central, State or Provincial Act;(iv) any Government company(v) such other notified institutions
This section does not apply to:(i) any receipt by—(a) Government;(b) any banking company, post office savings bank or cooperative bank;(ii) transactions of the naturereferred to in section 269SS;(iii) such other notified institutions
Penalty
271D
271E
271DA
Quantum of Penalty
Sum equal to the amount of the loan or deposit or specified sum so taken or accepted
Sum equal to the amount of the loan or deposit or specified advance so repaid.
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.
