Essential Guidelines for Cash Withdrawals and Deposits: Stay Compliant and Avoid Penalties

Understanding the tax implications and compliance requirements for cash withdrawals and deposits is crucial for financial management. Here’s a comprehensive guide on the relevant rules and regulations to help you stay compliant and avoid unnecessary penalties.

Section 194N: TDS on Withdrawals

TDS on High Withdrawals:

1. 2% TDS on withdrawals exceeding Rs. 1 crore from a savings account in a financial year.
2. Additional TDS if ITR not filed for the last 3 years:
   • 2% TDS on withdrawals above Rs. 20 lakh.
   • 5% TDS on withdrawals above Rs. 1 crore.

Cash Deposit Rules

1. Savings Accounts: Cash deposits of Rs. 10 lakh or more in a financial year are reported by banks to the Income Tax Department.
2. Current Accounts: Reporting threshold is Rs. 50 lakh.
3. Depositing cash above these limits may trigger inquiries from the IT Department.

Mandatory PAN/Aadhaar From May 26, 2022

Quoting PAN or Aadhaar is mandatory for:

1. Cash Deposits: Rs. 20 lakh or more in a financial year in one or more accounts.
2. Cash Withdrawals: Rs. 20 lakh or more in a financial year from one or more accounts.

Penalties

1. Failure to quote PAN/Aadhaar for transactions above the threshold may result in the bank/post office refusing the transaction.
2. Unexplained cash deposits can attract a 60% tax plus surcharge and cess under Section 68.

Compliance Tips

1. Track total cash withdrawals in a financial year to ensure you stay within limits and avoid higher TDS rates.
2. File ITR diligently to avoid higher TDS on withdrawals and to maintain compliance with the IT Department.