Income Tax Alert: Limit on Cash Deposits in Savings Accounts

A savings account is an account that helps people save, manage daily transactions, and access various government schemes. While there is no restriction on the balance one can maintain in a savings account, certain rules apply to cash deposits. The Income Tax Department monitors large cash deposits, and banks must inform the department if deposits cross specified limits. Here are some guidelines that savings account holders should observe to avoid scrutiny by tax authorities.

Unlimited Savings Balance, but Cash Deposits Are Monitored

In India, savings account holders can maintain any balance in their accounts without a maximum limit. However, if deposits fall under taxable income, account holders must declare the income source. While there is no maximum cap on digital or cheque deposits, cash deposits are subject to specific limits.

Cash Deposit Rules and PAN Requirement

According to the rules, cash deposits exceeding Rs 50,000 require PAN identification.

Up to Rs 1 lakh in cash can be deposited in a single day. For occasional cash deposits, this limit may be extended to Rs 2.5 lakh. [Please note that these are generally recommended limits, and nothing is formally notified.]

An annual cumulative limit of Rs 10 lakh in cash deposits applies to all savings accounts a taxpayer holds for the financial year.

Income Tax Department Monitors Large Cash Deposits

If an account holder deposits over Rs 10 lakh in cash within a financial year, the bank must report it to the Income Tax Department. In such cases, the account holder may need to provide proof of the income source. If this information is not included in the Income Tax Return, the account holder could be identified for further investigation, potentially facing significant penalties if found non-compliant.

If the source cannot be verified, the Income Tax Department may impose a 60% tax on the deposited amount, along with a 25% surcharge and an additional 4% cess. However, cash deposits above Rs 10 lakh are permitted if the account holder can provide documentation proving the income source.

Options to Limit Large Cash Deposits

Although large deposits are allowed if proper documentation is provided, financial experts suggest alternative options to improve returns. Converting significant amounts into fixed deposits (FDs) or exploring other investment avenues may offer higher returns compared to standard savings accounts.