Although digital payments have gained popularity everywhere in India, savings bank accounts have become a common way of holding money. Most individuals do not know that crossing a particular monetary threshold in their accounts can attract a check from the tax department, which can lead to hefty penalties as savings account limit exceeded.
Reserve Bank of India (RBI) guidelines say that individuals can deposit up to Rs 10 lakh cash in their savings accounts during a financial year. Exceeding this amount is not necessarily taxable, but it has to be reported to tax officials. Banks are required to report high-value transactions under the Annual Information Return (AIR) system, which puts such deposits under surveillance for compliance.
PAN information for higher cash deposits
Even though deposits of as much as Rs 50,000 do not require PAN information, any amount over this necessitates that you provide your PAN information. The provision ensures easy tracking of large transactions and financial operations remain transparent and in conformity with law. Individual deposits being small, even though, investigation could be triggered if their count for the year crosses Rs 10 lakh.
Where the deposits are above Rs 10 lakh and the source of the money does not align with the declared income, the Income Tax Department may initiate inquiry. Failure to show the source of deposits may result in treating them as unexplained income, which can attract a heavy rate of tax up to 60% along with other charges.
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Maintain Proper Documentation
To avoid complications, it is imperative to have extensive documentation for all major transactions, like receipts and invoices of costly purchases. The documents serve as proof of your money transactions and could be invaluable during the day of tax audit, especially when the expenses appear not in compliance with your claimed income.
Although it is perfectly lawful to use your savings account, one has to be careful that all transactions are traceable and within set limits. Recording sources of income correctly and reporting large-value transactions in tax returns can prevent penalties and ensure fiscal compliance. Remaining vigilant, you can manage your finances responsibly without drawing unwanted attention.
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