The Income Tax Department has set strict limits on cash deposits to curb tax evasion, money laundering, and illegal financial activities. Violating these limits can result in penalties or legal action. Here’s a detailed breakdown of the rules you should know before depositing cash in your bank account.

Cash Deposit Rules for Savings and Current Accounts

1. Daily Cash Deposit Limit for Savings Accounts

   • You can deposit up to ₹1 lakh in cash per day into your savings account.
   • For infrequent cash deposits, the daily limit can extend to ₹2.5 lakh.

2. Annual Cash Deposit Limit

   • Savings Account: Maximum of ₹10 lakh per financial year.
   • Current Account: Maximum of ₹50 lakh per financial year.

3. Mandatory PAN Requirement

   • If you deposit ₹50,000 or more in cash at once, you need to provide your PAN (Permanent Account Number).

4. Current Accounts for Large Transactions

   • Monthly cash deposit limits for businesses, such as distributors and manufacturers, range from ₹1 crore to ₹2 crore, depending on the account type.

Reporting and Monitoring by the IT Department

• If cash deposits exceed the prescribed limits:

  • Banks and financial institutions must report the transaction to the Income Tax Department.
  • For example, depositing over ₹10 lakh in a savings account or ₹50 lakh in a current account in a financial year triggers this reporting.

• These measures aim to monitor large cash transactions, ensure compliance with tax laws, and discourage illegal activities.

Key Provisions to Keep in Mind

1. Section 194N: TDS on Cash Withdrawals

   • If you withdraw over ₹1 crore from your savings account in a financial year, 2% TDS (Tax Deducted at Source) will be deducted.
   • For individuals who haven’t filed an ITR (Income Tax Return) in the last three years:
     • TDS is deducted at 2% on withdrawals above ₹20 lakh.
     • For withdrawals exceeding ₹1 crore, 5% TDS is applicable.

2. Section 269ST: Cash Deposit Penalty

   • Depositing ₹2 lakh or more in cash into a single account in one financial year can attract penalties.
   • This section does not apply to cash withdrawals but ensures deposits remain within legal limits.

Tips to Avoid Penalties

1. Maintain Digital Records: Use online transactions or digital payment methods to reduce cash dependency.
2. Stay Within Limits: Monitor your cash deposits to ensure compliance with prescribed limits.
3. Provide PAN Details: Always provide your PAN for deposits of ₹50,000 or more.
4. Consult a Tax Expert: For frequent or large transactions, seek professional advice to remain compliant with tax laws.

Final Thoughts

Understanding these rules is essential for managing your bank accounts effectively and avoiding penalties. With stricter compliance measures in place, ensure that your cash transactions remain transparent and within legal boundaries. This way, you can save yourself from unnecessary financial and legal troubles.