Income Tax : The Income Tax Department has issued important guidelines regarding the management of bank accounts, particularly focusing on cash deposits and withdrawals. These rules aim to curb money laundering, tax evasion, and other illegal financial activities.
60% Tax for Undisclosed Cash Deposits
Under Section 68 of the Income Tax Act, individuals who deposit cash into their bank accounts must be prepared to disclose the source of their income. If they fail to do so, they could be subject to a hefty tax rate of 60%, which includes a 25% surcharge and a 4% cess. The department has emphasized that it has the authority to issue notices and initiate recovery if a satisfactory source of income is not disclosed.
Reporting Requirements for Cash Deposits Over Rs 10 Lakh
The Income Tax Act stipulates that any cash deposit exceeding Rs 10 lakh in a financial year into a savings account must be reported to the tax authorities. For current accounts, the reporting threshold is set at Rs 50 lakh. While crossing these limits does not immediately result in tax liability, failure to provide accurate information regarding the source of the funds could lead to serious financial repercussions.
TDS and TCS on Large Withdrawals
Section 194N of the Income Tax Act introduces tax implications for large cash withdrawals. If an individual withdraws more than Rs 1 crore from their bank account in a financial year, a 2% Tax Deducted at Source (TDS) will be applied. However, for individuals who have not filed Income Tax Returns (ITR) for the previous three years, the TDS rate is applicable on withdrawals exceeding Rs 20 lakh, and a 5% Tax Collected at Source (TCS) is applicable for withdrawals over Rs 1 crore.
Government’s Stance on Cash Transactions
These measures are part of the government’s ongoing efforts to reduce the circulation of cash and encourage digital transactions. By imposing stringent rules on cash deposits and withdrawals, the government aims to enhance financial transparency and accountability.
Key Takeaways for Account Holders
- Disclose Income Sources: It is crucial for bank account holders to maintain clear records of their income sources to avoid potential tax liabilities.
- Be Mindful of Limits: Stay aware of the cash deposit and withdrawal limits to ensure compliance with the Income Tax Department’s guidelines.
- File Your ITR: Regularly filing your Income Tax Returns can help avoid higher TDS rates on large withdrawals.
Bank account holders are advised to adhere to these guidelines to avoid penalties and ensure smooth financial transactions. The Income Tax Department continues to monitor cash transactions closely to promote a more transparent and secure banking environment.
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