Cash deposit rules: How much is too much in your savings account?

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Cash deposits into savings accounts are common in India, especially among small businesses, professionals, and individuals dealing in cash-heavy transactions. However, large or frequent deposits can attract attention from the Income Tax Department. Knowing the permissible limits and associated tax rules can help you avoid unnecessary scrutiny or penalties.

The ₹10 lakh limit for savings accounts

The Reserve Bank of India (RBI) and the Income Tax Department have mechanisms to track high-value transactions. If you deposit more than ₹10 lakh in cash into your savings account in a financial year, your bank is required to report it to the tax authorities under the Annual Information Return (AIR) framework. This does not mean you will be taxed automatically, but your transactions may come under scrutiny if they appear inconsistent with your declared income.

For current accounts, the threshold is higher—₹50 lakh in cash deposits in a financial year.

PAN requirement for high-value transactions

Any cash deposit of ₹50,000 or more in a single transaction requires the submission of your Permanent Account Number (PAN). Even if each deposit is below ₹50,000, the Income Tax Department may flag the account if cumulative deposits cross the annual threshold and appear suspicious, especially if the income declared does not justify such deposits.

What happens if you exceed the limit?

Depositing large sums of cash without a legitimate source can lead to inquiries from the Income Tax Department under sections like 131, 142(1), or 148 of the Income Tax Act. If you cannot explain the source of the funds satisfactorily, the amount may be deemed unexplained income and taxed under Section 68 at a steep flat rate of 60%, plus surcharge and cess, totalling more than 75% in some cases.

Cash deposits and your Form 26AS or AIS

All high-value transactions reported by your bank are reflected in your Form 26AS or the new Annual Information Statement (AIS). Tax officials use these records to match with your filed income tax returns. If there’s a mismatch, you could receive a notice seeking clarification.

Tips to avoid tax scrutiny on cash deposits

• · Keep documented proof of the source of all large cash deposits.
• · Don’t split large transactions into smaller ones to bypass PAN or reporting limits—it may still be flagged.
• · Match your cash deposits with your income declared in your Income Tax Return (ITR).
• · File your returns on time and maintain transparency to avoid notices.

Depositing up to ₹10 lakh in a savings account in cash annually may not automatically trigger tax scrutiny, but everything hinges on the source and consistency of the deposit with your reported income. Responsible financial reporting and record-keeping remain your best shield against any unwanted attention from tax authorities.