Income Tax Notice

In India, while there is no explicit restriction on the amount of cash you can deposit into your savings account, certain thresholds have been established by the Income Tax Department to monitor high-value transactions and curb tax evasion. Exceeding these limits may lead to scrutiny and potential notices from tax authorities. Key Cash Deposit Limits in Savings Accounts Annual Limit: ₹10 Lakh Depositing more than ₹10 lakh in cash into your savings account during a financial year (April 1 to March 31) will prompt your bank to report the transaction to the Income Tax Department under the Statement of Financial Transactions (SFT) framework. This is mandated by Section 285BA of the Income Tax Act. Daily Limit: ₹2 Lakh Under Section 269ST of the Income Tax Act, cash transactions exceeding ₹2 lakh per day from a single person are prohibited. This includes both deposits and receipts. Violating this rule can result in significant penalties. PAN Requirement: Deposits Above ₹50,000 For any single cash deposit exceeding ₹50,000, you must furnish your Permanent Account Number (PAN) to the bank. If you do not have a PAN, you must submit Form 60 or 61 as an alternative. Consequences of Exceeding Cash Deposit Limits Income Tax NoticesSurpassing the prescribed limits can result in the Income Tax Department issuing notices seeking clarification on the source of funds. Taxation on Unexplained IncomeIf you fail to satisfactorily explain the source of large cash deposits, the amount may be treated as unexplained income under Section 68 of the Income Tax Act. Such income is taxed at a flat rate of 60%, with an additional 25% surcharge and 4% cess—bringing the effective tax rate to over 75% in some cases. PenaltiesNon-compliance with Section 269ST can result in a penalty equal to the amount of the prohibited transaction. Best Practices to Avoid Tax Scrutiny Maintain DocumentationKeep records such as receipts, invoices, or any other proof to substantiate the source of large cash deposits. Use Digital TransactionsOpt for digital modes of payment like NEFT, RTGS, or UPI to reduce the need for cash deposits. File Accurate Tax ReturnsEnsure that your income tax returns accurately reflect your income and financial activities. Respond Promptly to NoticesIf you receive any communication from the Income Tax Department, respond quickly and provide the necessary documentation. Quick Reference Table Transaction TypeThreshold LimitRequirement/ActionAnnual Cash DepositUp to ₹10 lakhNo automatic scrutinyDaily Cash DepositUp to ₹2 lakhExceeding may attract penalties under Section 269STSingle Deposit Without PANUp to ₹50,000PAN mandatory for amounts above ₹50,000Unexplained Cash DepositsAny amountTaxed at 60% + surcharge and cess if unexplained Conclusion Depositing cash into your savings account is a common financial activity, but being aware of regulatory thresholds is essential. Staying within the prescribed limits and maintaining transparency in your financial transactions will help you avoid unnecessary scrutiny and potential penalties from the Income Tax Department. For official guidelines and updates, visit the Income Tax Department website. Read More: Procedural Uniformity In Handling Cases Relating To Baggage Across Customs Formations: CBIC

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