People from all walks of life, including salaried individuals, typically have at least one savings account to store their money safely while earning interest.
While there’s generally no limit on how much money can be deposited in a savings account, it’s crucial to be aware of certain thresholds that, if exceeded, require banks to report transactions to tax authorities. This awareness can help you stay outside the taxman’s radar.
Reporting Requirements for Financial Transactions
To curb black money and widen the tax base, the government mandates that banks, corporates, post offices, NBFCs, and others report certain financial transactions that exceed prescribed thresholds. These include cash deposits/withdrawals, investments, credit card expenses, and more.
Aarti Raote, Partner at Deloitte India, explains that banks must report cash deposits and withdrawals of ₹10 lakh or more in a financial year from savings accounts to the tax department. This helps tax officers inquire about the source of funds and ensure appropriate taxes are paid.
Key Thresholds to Be Aware Of
- Savings Account Deposits/Withdrawals:
- Cash deposits/withdrawals aggregating to ₹10 lakh or more in a financial year must be reported.
- For current accounts, this limit is ₹50 lakh.
- Other Reportable Transactions:
- Credit Card Payments: Payments aggregating to ₹1 lakh or more in cash, or ₹10 lakh or more by any other mode, in a financial year.
- Bonds/Debentures: Receipts aggregating to ₹10 lakh or more in a financial year for acquiring bonds or debentures.
- Shares: Receipts aggregating to ₹10 lakh or more for acquiring shares issued by a company.
- Mutual Funds: Receipts aggregating to ₹10 lakh or more for acquiring units of mutual fund schemes.
- Foreign Currency Sales: Receipts aggregating to ₹10 lakh or more for the sale of foreign currency.
- Immovable Property: Transactions of ₹30 lakh or more for the purchase or sale of immovable property.
Kapil Rana, Founder & Chairman of HostBooks Ltd, emphasizes the importance of understanding the nature and value of transactions that fall under the reporting requirements to stay outside the tax authorities’ radar.
Detailed Reporting Requirements Under Rule 114E of the Income Tax Rules, 1962
For Banking Companies or Co-operative Banks:
- Cash deposits aggregating to ₹10 lakh or more in a financial year in one or more accounts (excluding current and time deposits).
- Payments in cash aggregating to ₹10 lakh or more for bank drafts/pay orders/banker’s cheques/prepaid instruments.
For Credit Card Issuers:
- Cash payments aggregating to ₹1 lakh or more in a financial year against the bill.
- Payments by any other mode aggregating to ₹10 lakh or more in a financial year against the bill.
For Companies Issuing Bonds, Debentures, and Shares:
- Receipt of ₹10 lakh or more in a financial year for acquiring bonds or debentures.
- Receipt of ₹10 lakh or more for acquiring shares.
For Trustees of Mutual Funds:
- Receipt of ₹10 lakh or more in a financial year for acquiring units of mutual fund schemes.
For Authorized Persons Under FEMA:
- Receipt of ₹10 lakh or more for the sale of foreign currency.
For Registrars and Sub-Registrars:
- Transactions of ₹30 lakh or more for the purchase or sale of immovable property.
Summary
Before depositing or withdrawing large amounts in a savings account, it’s essential to be aware of the reporting thresholds to avoid scrutiny from tax authorities. By understanding these limits and ensuring compliance, you can manage your finances efficiently while staying within legal boundaries.
Key Takeaways
- Thresholds for Reporting: Be mindful of the ₹10 lakh limit for savings accounts and other significant transactions.
- Multiple Reporting Entities: Banks, credit card issuers, companies, and registrars are required to report transactions exceeding specific limits.
- Stay Informed: Awareness of these thresholds helps in avoiding unnecessary scrutiny and ensures compliance with tax laws.
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