Savings Accounts Rules: Having savings accounts is necessary as far as managing your financial transactions is concerned. Most users prefer these types of accounts because of their safety and the little interest that is gained from deposits.
However, be aware that there are rules and regulations that govern the use of savings accounts. Ignorance of these rules will lead to penalties, and in some cases, one may receive or even be reported to the Income Tax Department. So, it is very important for you to know about this if you have a savings account.
People love saving their hard-earned cash in savings accounts. But your knowledge would surprise you mostly as there is a limit to the deposit amount in a savings account. Overstepping that limit could invite trouble.
The Income Tax Department has also prescribed cash deposits and withdrawals limits to keep an eye on high-value transactions. Such rules are supposed to create roadblocks in the path of money laundering, tax evasion, and illegal or unlawful financial transactions.
Most Important Guidelines for Savings Accounts
Cash Deposit Limit:
- Deposit ₹10 lakh or more in a savings account within a financial year and you absolutely have to report it to the Income Tax Department. This was to track large cash flows and suspicious activities by authorities.
Current Account Transactions:
- For current accounts, this limit is much higher: ₹50 lakh and more in a financial year must then be reported to authorities. There is no immediate #tax on those enormous deposits, but deposits such as these must be reported by the financial institutions in compliance with the law.
Rules for Cash Withdrawals (Section 194N):
- A TDS of 2% will be levied on withdrawals of above ₹1 crore in a year.
- TDS becomes harsher if tax has not been filed within three continuous years.
- 2% TDS on a withdrawal exceeding ₹20 lakh.
- 5% TDS on withdrawal exceeding ₹1 crore.
Note: Under Section 194N, TDS is not income.
Penalty for High Cash Deposits (Section 269ST):
- Deposit Rs 2 lakh or more in cash in one day or even multiple transactions within a year and one can draw a penalty for doing so. This applies to cash deposits only, not cash withdrawals.