With the rapid digitization of financial systems and the government’s continued focus on increasing transparency, the Income Tax Department of India has established clear and strict regulations on cash deposits and withdrawals. These rules aim to control black money, tax evasion, and illegal cash flow through the banking system. Understanding the cash transaction limits, including the penalties and tax implications associated with them, is essential for every taxpayer, business owner, and salaried individual in India.
This article provides a comprehensive overview of the latest updates on cash deposit and withdrawal limits in India as per the Income Tax Act, including how these transactions are monitored, when TDS is applicable, and what happens if you cross the thresholds.
What Is the Cash Deposit Limit in Savings Accounts?
The cash deposit limit in a savings account, as defined by the Income Tax Act, is set at ₹10 lakh in a financial year. If the total cash deposits made into a savings account cross this limit, the bank is legally required to report the transaction to the Income Tax Department under the Annual Information Return (AIR) framework.
This does not mean that depositing more than ₹10 lakh is illegal, but it certainly invites scrutiny. The tax department may issue a notice to the account holder asking them to explain the source of the funds.
Cash Deposit Limit for Current Accounts
For current accounts, which are primarily used by businesses for frequent and large-volume transactions, the reporting threshold is ₹50 lakh in a financial year. Again, exceeding this limit is not an offense by itself, but the depositor must be able to justify the source of the income if queried by tax authorities.
Banks and financial institutions have been instructed to report all such transactions to ensure proper checks are in place to combat money laundering and fraudulent activities.
Section 194N: TDS on Cash Withdrawals
One of the most significant reforms aimed at discouraging cash-based transactions is Section 194N of the Income Tax Act, introduced in 2019. Here’s how it works:
For regular taxpayers:
- If the total cash withdrawals exceed ₹1 crore in a financial year, a TDS of 2% is applicable on the amount exceeding ₹1 crore.
For non-filers (those who haven’t filed ITR for last 3 years):
- 2% TDS applies if the withdrawal is more than ₹20 lakh.
- 5% TDS applies if the withdrawal is more than ₹1 crore.
It is important to note that TDS under Section 194N is not considered income. Instead, it is adjustable against your final tax liability when you file your Income Tax Return (ITR).
Section 269ST: Limit on Receiving Cash
To regulate the acceptance of large cash amounts, Section 269ST of the Income Tax Act prohibits any individual or entity from receiving ₹2 lakh or more in cash:
- In a single transaction, or
- From a single person in one day, or
- For one event or occasion from a person
Violating Section 269ST can result in a penalty equal to the amount received in cash. However, this rule does not apply to cash withdrawals from banks, although those withdrawals may still be subject to TDS under Section 194N if thresholds are breached.
Sections 269SS and 269T: Limits on Cash Loans and Repayments
The Income Tax Act also places restrictions on cash loans and their repayments under Sections 269SS and 269T, respectively:
- Section 269SS: Prohibits accepting any loan or deposit of ₹20,000 or more in cash.
- Section 269T: Prohibits repayment of any loan or deposit of ₹20,000 or more in cash.
Violating these provisions can attract a 100% penalty—meaning you may be liable to pay a penalty equal to the entire loan amount.
Section 68: When You Can’t Explain Your Cash Deposits
If you are unable to explain the source of a large cash deposit, the Income Tax Department may invoke Section 68 of the Act. This section allows authorities to treat the amount as unexplained income, and the consequences are severe:
- Tax at 60%
- Surcharge at 25%
- Cess at 4%
This totals to an effective tax of 78% on unexplained cash deposits—making it crucial to maintain a paper trail and bank record of your income.
Applicability of Section 44AD and 44ADA for Businesses
Under Sections 44AD and 44ADA, small businesses and professionals are allowed to declare income on a presumptive basis—i.e., without maintaining detailed books of accounts. In such cases:
- Cash deposits matching the declared turnover are usually not questioned.
- However, if the cash deposits are disproportionate to the reported income, the Income Tax Department may investigate.
Hence, even if you’re under presumptive taxation, ensure that all your cash deposits are business-related and properly documented.
Other Key Limits and Guidelines for Cash Transactions
Here are some of the additional cash transaction limits that you must keep in mind:
| Transaction Type | Limit | Provision |
|---|---|---|
| Cash deposit in savings account | ₹10 lakh/year | Reporting to IT Dept (AIR) |
| Cash deposit in current account | ₹50 lakh/year | Reporting to IT Dept (AIR) |
| Cash withdrawal (regular ITR filers) | ₹1 crore/year | 2% TDS above this limit |
| Cash withdrawal (non-filers) | ₹20 lakh/year | 2% TDS, 5% above ₹1 crore |
| Single cash receipt from person | ₹2 lakh | Prohibited (Section 269ST) |
| Cash loan accepted or repaid | ₹20,000 | Prohibited (Sections 269SS/T) |
| Unexplained cash deposit | Any amount | 78% tax under Section 68 |
Why the Government Enforces These Limits
These cash transaction rules are part of a broader strategy by the Government of India to:
- Digitize the economy
- Reduce black money circulation
- Increase tax compliance
- Track high-value cash movements
The Financial Intelligence Unit (FIU) and banks work together to monitor transactions and report suspicious activity, which helps prevent money laundering, terror financing, and tax fraud.
Frequently Asked Questions (FAQs)
Q1: Is it illegal to deposit more than ₹10 lakh in a savings account?
No, it’s not illegal. However, such deposits will be reported to the tax department, and you may be asked to explain the source.
Q2: Can I deposit ₹5 lakh in cash in multiple transactions to avoid detection?
Splitting transactions is known as structuring and is considered suspicious behavior by financial authorities. It may still trigger scrutiny.
Q3: Will TDS apply if I withdraw cash from multiple banks?
Yes, aggregate cash withdrawals from all bank accounts held by a person are considered while applying Section 194N.
Q4: Can I accept cash from a friend as a gift exceeding ₹2 lakh?
You may accept it, but under Section 269ST, accepting ₹2 lakh or more in cash from a person in a day is prohibited and could attract a penalty.
Stay Informed, Stay Compliant
As the government tightens regulations on high-value cash transactions, it is essential for individuals and businesses alike to understand and comply with these income tax laws. From cash deposits to withdrawals, from loans to receipts, each transaction must be transparent and justifiable.
Being proactive in maintaining records, filing timely income tax returns, and avoiding large unaccounted cash movements can save you from heavy penalties, tax scrutiny, and even prosecution in extreme cases.
