Beware of Cash Deposits: Could You End Up Paying 60% in Taxes?

Your bank account may seem simple to manage, but the Income Tax Department has strict guidelines for deposits and withdrawals. Breaking these rules can result in hefty taxes. Let’s simplify the key points for you.

What Happens If You Can’t Explain Your Cash Deposits?

If you deposit a large sum of money and fail to explain where it came from, the Income Tax Department can impose a 60% tax penalty under Section 68 of the Income Tax Act. This amount includes a 25% surcharge and 4% cess.

Why This Rule Exists:
The government aims to reduce cash transactions to curb tax evasion, money laundering, and illegal financial activities.

Depositing Over ₹10 Lakh? Inform the Authorities

If you deposit more than ₹10 lakh in your savings account within a financial year, you must inform the tax authorities.

• For Current Accounts: This limit is higher at ₹50 lakh.
• No Immediate Tax: You won’t face taxes if you disclose the source of income correctly.

Withdrawals Over ₹1 Crore? TDS Will Apply

Section 194N of the Income Tax Act outlines tax deductions for large withdrawals:

• 2% TDS: Applied if you withdraw over ₹1 crore in a year.
• Haven’t Filed ITR? You’ll pay:
  • 2% TDS for withdrawals above ₹20 lakh.
  • 5% TDS for withdrawals above ₹1 crore.

Why Following These Rules Matters

Staying compliant with income tax guidelines ensures you avoid unnecessary penalties and scrutiny. Always document the source of your cash and keep track of your deposits and withdrawals to steer clear of trouble.

By being informed, you can save yourself from a potential 60% tax shock!