In a significant move toward greater financial transparency, the Indian Income Tax Act has introduced stringent regulations governing cash transactions. These rules, designed to curb illicit financial activities, have implications for both individuals and businesses. This article delves into the details of cash deposit limits and the associated taxation rules, providing a comprehensive understanding of the regulations in place.
Understanding Cash Deposit Limits
- Savings Account Regulations: For individuals, cash deposits exceeding INR 10 lakh within a fiscal year must be reported to tax authorities. This measure aims to prevent the influx of untaxed money into the financial system unnoticed.
- Current Account Considerations: Businesses face a higher threshold, with a reporting requirement set at INR 50 lakh, recognizing the larger volume of transactions conducted by businesses.
Tax Deductions at Source (TDS) on Withdrawals
- Section 194N: Cash withdrawals exceeding INR 1 crore within a fiscal year are subject to a 2% TDS. The rate is 2% for withdrawals over INR 20 lakh and 5% for withdrawals exceeding INR 1 crore for those who haven’t filed income tax returns for the past three years.
Cash Transaction Restrictions
- Sections 269ST, 269SS, and 269T:
- Section 269ST imposes penalties for receiving INR 2 lakh or more in cash in a single transaction or related transactions within a year.
- Sections 269SS and 269T deal with cash loans, stating that accepting or repaying loans in cash over INR 20,000 could result in penalties equal to the loan amount.
Taxation of Cash Deposits
- Sections 44AD/44ADA: Financial institutions report significant cash deposits to authorities. Individuals and businesses must also consider Sections 44AD/44ADA when declaring business turnover to avoid penalties.
Additional Cash Transaction Limits
Beyond savings and current accounts, specific limits exist for other transactions:
- Cash Deposit Limit in Current Account: Varies by bank but is generally higher to accommodate business needs.
- Cash Withdrawal Limit: Aimed at preventing illegal activities by ensuring large withdrawals are reported.
- Cash Gift Limit: Regulates the amount of cash gifts without attracting taxes.
- Fixed Deposit Limit: Dictates the maximum amount that can be deposited in a fixed deposit account.
- Credit Card Bill Payment Limit: Imposes restrictions on cash payments toward credit card bills.
- Real Estate Transactions Limit: Enforces limits on cash payments in real estate transactions to promote transparency.
Real Estate Specifics
For real estate transactions, it’s illegal to purchase property entirely in cash if the amount exceeds INR 20,000. However, recording cash payments in the sale deed is permissible within this limit.
