Cash Deposit Limits in Current Accounts: Key Rules and Compliance for 2026
In 2026, businesses must navigate strict cash deposit limits in current accounts to avoid Income Tax notices and penalties. Exceeding Rs 50 lakh in cash deposits per financial year triggers mandatory reporting under SFT rules, emphasizing the need for proper documentation and ITR filing.[1][3][5]
Why Businesses Must Use Current Accounts for Transactions
All bank accounts are linked to PAN and Aadhaar, making it essential to segregate business and personal finances. Conducting business transactions like cash deposits, withdrawals, UPI payments, customer receipts, or vendor payments through a savings account can appear suspicious to banks.[1]
- Banks monitor unusual activity in savings accounts, potentially leading to account freezes or notices from Income Tax or GST departments.
- There is no legal limit on the number of current accounts one can open, providing flexibility for businesses.[1]
- Mixing personal and business funds risks scrutiny, as savings accounts have lower reporting thresholds like Rs 10 lakh for cash deposits.[3][5]
Using a dedicated current account exclusively for business ensures compliance and demonstrates legitimacy of transactions.[1]
Cash Limits and Reporting Thresholds in Current Accounts
Banks report cash transactions exceeding specified limits via Statement of Financial Transactions (SFT) to the Income Tax Department. For current accounts, the key threshold is Rs 50 lakh per PAN per financial year.[1][3][5]
Cash Deposit and Withdrawal Limits
- Cash Deposits: Rs 50 lakh per FY per account; exceeding this prompts SFT reporting.[1][3]
- Cash Withdrawals: Rs 50 lakh per FY; excess triggers SFT and TDS under Section 194N.[1]
TDS Rules Under Section 194N
| ITR Filing Status | Threshold | TDS Rate |
|---|---|---|
| ITR filed for last 3 years | Above Rs 1 crore | 2% on excess |
| No ITR for last 3 years | Above Rs 20 lakh (2%), Rs 1 crore (5%) | 2% up to Rs 1 crore, 5% above |
Note: These apply to withdrawals, not deposits directly, but high deposits can lead to scrutiny if unmatched with income.[1][3]
Additional rules include Section 269ST prohibiting cash receipts of Rs 2 lakh or more in a day or transaction, with penalties up to the full amount.[3]
Notice Triggers, Consequences, and Remedies for Compliance
Exceeding limits leads to SFT reports, but notices arise from ITR mismatches, such as using ITR-1 with high deposits but no business income.[1]
Timeline for Notices
- Section 143(2): Scrutiny assessment by June 30 of the Assessment Year (e.g., FY 2024-25 by June 30, 2026).[1]
- Section 133(6): Anytime, no deadline.[1]
- Section 148: 4 years generally, up to 6 years for Rs 50 lakh+ unreported income.[1]
Consequences of Non-Compliance
- Unjustified transactions treated as income, with tax, interest, and penalties up to 83-84%.[1]
- Banks may freeze accounts for suspicious activity.[1]
Remedies to Stay Safe
- Maintain records justifying cash flows via sales invoices or services.[1]
- File ITR annually with correct form (e.g., ITR-3/4 for business income).[1]
- Monitor AIS/TIS/Form 26AS regularly and update contact details on portals.[1]
- Respond promptly to any notices.[1]
From April 2026, new RBI rules enhance digital banking for basic accounts and impose stricter liquidity norms for digital deposits, indirectly affecting cash management strategies.[2]
Businesses should consult a Chartered Accountant to ensure full compliance, as rules like these evolve to promote transparency and curb black money.[1][3]