Income Tax rules for cash deposit and withdrawal



 

Individuals depositing Rs 10 lakh or more in a savings account during a financial year will have the transaction reported to the income tax authorities by the bank. TDS will be levied on cash withdrawals exceeding certain limits. Failure to establish the source of income for cash deposits may result in taxation at a high rate. In the case of cash deposits due to cash receipts, penalties may apply. Cash loans exceeding Rs 20,000 are subject to penalties. The article, penned by CA Jigar Mansatta, advises individuals to consider these scenarios before depositing or withdrawing cash.

Contents  hide 
1 Taxability Cash Deposits/Withdrawals – Specified Financial Transactions
2 Taxability in case of failure to establish source
3 Taxability in case where cash deposited in bank is on account of cash receipts
4 Taxability in case where cash deposit is on account of cash loans
4.1 Related

Taxability Cash Deposits/Withdrawals – Specified Financial Transactions

According to Income Tax Act, some of the transactions are treated as specified financial transactions i.e. if, during a particular financial year, any person is depositing cash aggregating Rs 10 lakh or more in a saving account then the bank will be required to report such transaction. The limit of Rs. 50 lakh is applicable for current account holders.

It is noteworthy for every individual that though the government is not levying any tax on the deposit of hard-earned money of individuals, if the transaction is done above the specified limit during the financial year then such transaction will be reported by banks as a specified financial transaction to Income Tax authorities.

In case of withdrawal of cash, as per section 194N of Income Tax Act, 1961; TDS will be deducted as:

Taxability in case of failure to establish source

Many times it may happen that person is required to file returns of income but has not filed or the income of such person belongs to a specified exemption limit. In such cases, if the person is depositing cash in a bank account then the income tax authority can issue notice to such person with reference to section 68 of the Income Tax Act. If the person has failed to establish the source of income then such income is taxed at the rate of 60% along with a 25% surcharge and 4% cess.

In case a person is covered under section 44AD/44ADA (Presumptive scheme of taxation for certain assesses for specified business): The assessee is not required to maintain books of account and up to the turnover declared by the assessee in the return of income, the assessee cannot be punished for such deposits. However, the department has the right to question the deposits which has no nexus with business.

For Instance, if a person is receiving notice for cash deposits made by him, where he is engaged in business in which he is receiving huge cash amount on a daily basis. Whether entire amount deposited by such a person will be taxable?

It is a well-established position of law that in such cases if a person proves the genuineness of the transaction then only the profit component of such transaction will be taxable.

Taxability in case where cash deposited in bank is on account of cash receipts

According to section 269ST of the Income Tax Act, if a person is receiving Rs. 2 lakh in cash during a particular year or in respect of a particular transaction then the person receiving such cash will be penalised as per section 271DA where penalty is equivalent to the amount of cash receipt.

What if the person is receiving money from banks on account of cash withdrawals made by him? Section 269ST specifically excludes such transactions and no penalty will be levied on such transactions. However, if withdrawal is exceeding specified limits then in such case TDS will be deducted from such withdrawals (194N).

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