How Much Cash Can You Deposit in a Savings Account Without Attracting Taxes?

To meet their banking needs, many people, including those with regular salaries, often open savings accounts to keep their money safe and earn interest. It's important to be aware of the specific limits for cash deposits and withdrawals to prevent catching the attention of tax authorities. Any transactions exceeding certain thresholds, such as cash deposits or withdrawals totaling Rs 10 lakh or more in a year, must be reported. Additionally, other activities like credit card payments and investments also have reporting requirements. Understanding these rules before carrying out any banking transactions is essential to stay compliant and avoid being flagged for reporting under Rule 114E.

To fulfill their banking needs, individuals from different backgrounds, including those who receive regular salaries, often opt to have at least one savings account. Some even maintain multiple accounts for different purposes. People with stable incomes typically choose to open a savings bank account as it provides a secure place to store their money while also allowing them to earn interest on their balance.

Tax experts say that to prevent tax evasion and ensure everyone pays their fair share, the government requires banks, companies, and other institutions to report certain transactions. These include large cash deposits or withdrawals, investments in stocks or bonds, credit card spending, foreign currency, or buying property. This helps the tax authorities keep track of people's financial activities and identify potential tax evasion.

Tax laws require banks to regularly report cash deposits and withdrawals exceeding Rs 10 lakh in non-current or non-time deposit accounts to the tax department. This applies to the total sum deposited or withdrawn over the year, across all accounts belonging to the taxpayer, excluding current and time deposit accounts. This reporting helps tax authorities investigate the source of funds, and the type of income received, and ensure that the correct taxes have been paid.

Therefore, if you deposit or withdraw Rs 10 lakh or more in a bank account within a financial year, you must be cautious as these transactions must be reported to the tax authorities. The threshold is higher for current accounts, set at Rs 50 lakh or more. Besides cash transactions, other activities also require awareness:

A. Banking companies or cooperative banks regulated under the Banking Regulation Act, 1949, must report the following:

- Cash deposits totaling Rs 10 lakh or more in a financial year across one or more accounts, excluding current and time deposits.

- Cash payments of Rs 10 lakh or more in a financial year for purchasing bank drafts, pay orders, banker’s cheques, or prepaid instruments issued by the Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007.

These reporting requirements extend to various entities:

B. Credit card issuing banks under the Banking Regulation Act, 1949, or any other entity, must report:

- Cash payments of Rs 1 lakh or more in a financial year against a credit card bill.

- Non-cash payments totaling Rs 10 lakh or more in a financial year against a credit card bill.

C. Companies issuing bonds or debentures must report:

- Receipts of Rs 10 lakh or more in a financial year from an individual for acquiring bonds or debentures, excluding renewals.

D. Companies issuing shares must report:

- Receipts of Rs 10 lakh or more in a financial year from an individual for acquiring shares.

E. Listed companies purchasing their shares must report:

- Buyback of shares totaling Rs 10 lakh or more in a financial year from an individual.

F. Mutual fund trustees or managers must report:

- Receipts of Rs 10 lakh or more in a financial year from an individual for acquiring mutual fund units, excluding transfers between schemes of the same mutual fund.

G. Authorized foreign exchange dealers must report:

- Receipts of Rs 10 lakh or more in a financial year from an individual for the sale of foreign currency.

Thus, it is essential to ensure compliance with these provisions before conducting transactions involving deposits or withdrawals in bank accounts, to avoid falling within the scope of transactions required to be reported under Rule 114E, by entities such as banking companies, cooperative banks, other companies, or mutual fund trustees.

B. Any bank or institution authorized to issue credit cards, including cooperative banks governed by the Banking Regulation Act, 1949, must report the following transactions:

- Cash payments totaling Rs 1 lakh or more in a financial year against one or more credit card bills.

- Non-cash payments totaling Rs 10 lakh or more in a financial year against one or more credit card bills.

C. Companies or institutions issuing bonds or debentures must report receipts of Rs 10 lakh or more in a financial year from any individual for acquiring bonds or debentures issued by them, excluding amounts received for bond or debenture renewals.

D. Companies issuing shares must report receipts of Rs 10 lakh or more in a financial year from any individual for acquiring shares issued by them.

E. Companies listed on recognized stock exchanges and repurchasing their securities under section 68 of the Companies Act, 2013, must report share buybacks totaling Rs 10 lakh or more in a financial year from any individual, excluding shares purchased in the open market.

F. The manager of a Mutual Fund or any other individual overseeing its operations must report any amount totaling Rs 10 lakh or more received from an individual in an FY for acquiring more Mutual Fund scheme units. This excludes amounts received for transferring funds between schemes of the same Mutual Fund.

G. Any authorized individual as defined in clause (c) of section 2 of the Foreign Exchange Management Act, 1999, must report receipts of Rs 10 lakh or more from any person in a financial year for the sale of foreign currency.

H. The Inspector-General appointed under section 3 of the Registration Act 1908, or Registrar, or Sub-Registrar appointed under section 6 of that Act, must report any purchase or sale of immovable property by any individual valued at Rs 30 lakh or more, or valued at Rs 30 lakh or more by the stamp valuation authority referred to in section 50C of the Act.

Therefore, before making any deposits or withdrawals from a bank account, it is essential to ensure compliance with applicable provisions to avoid being subject to reporting requirements under Rule 114E by a Banking Company, Cooperative Bank, or any other company, including Trustees of Mutual Funds, among others.

Also Read: Updated Income Tax Return (ITR) Forms: What You Need to Know Starting April 1, 2024

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