Having a savings account is common for every individual, whether in a government or private bank. People use these accounts for transactions, receiving salaries, and availing of government benefits. However, many account holders are unaware of the crucial rules that apply to these accounts. If these rules are ignored, one might receive a notice from the Income Tax Department. Let’s take a look at the essential rules that every savings account holder must follow to stay compliant and avoid penalties.
1. Link PAN and Aadhaar to Your Savings Account
It is mandatory to link your PAN and Aadhaar to your savings account. This ensures transparency in transactions and prevents any unwanted scrutiny by tax authorities. Without linking, your transactions may be considered suspicious, and the bank may freeze your account or report it to the authorities.
2. Monitor Your Transaction Limits
Banks report high-value transactions to the Income Tax Department. If your transactions exceed a certain limit, they might come under scrutiny:
- Cash Deposits or Withdrawals: If you deposit or withdraw more than Rs.10 lakh in a financial year, the bank reports this to tax authorities.
- Online and Cheque Transactions: If your cumulative online transactions exceed Rs.50 lakh in a financial year, the details are shared with the Income Tax Department.
3. Keep Track of TDS on Interest Income
Interest earned on savings accounts is not subject to TDS (Tax Deducted at Source), but it still needs to be reported in your income tax return (ITR).
- If interest exceeds Rs.10,000 per year (or Rs.50,000 for senior citizens), you must report it in your tax filings.
- Failing to disclose this income may lead to tax notices or penalties.
4. High-Value Investments and Lockers Need Justification
If you rent a locker in a bank or make large investments of Rs.1 lakh or more, ensure that you have a legal source of funds to support these transactions. Unexplained high-value transactions may raise red flags with tax authorities.
5. Do Not Misuse Multiple Savings Accounts
Many individuals maintain multiple savings accounts, but misusing them can lead to trouble:
- Avoid unnecessary cash deposits in multiple accounts.
- Do not use savings accounts for business-related transactions.
- Ensure you keep track of all accounts to avoid penalties on non-maintenance of minimum balance.
6. File ITR on Time and Accurately
If your income is taxable, it is crucial to file your ITR before the deadline. Ensure you include:
- Interest income from your savings account.
- Details of any large transactions or tax-deductible expenses. Failure to file ITR on time may result in fines or tax scrutiny.
7. Avoid Suspicious or Anonymous Transactions
Using your savings account for someone else’s cash transactions can be risky:
- It may violate the Prohibition of Benami Transactions Act.
- Suspicious cash movements can trigger an investigation by the tax department.
- Always ensure your transactions are backed by proper documentation.
8. Maintain Proper Records of Banking Transactions
Keeping accurate records of your bank transactions helps in case of any inquiry.
- Maintain bank statements for at least six years.
- If required, provide proof of any large deposits or withdrawals to the tax authorities.
9. Do Not Exceed the Rs.2 Lakh Cash Transaction Limit
According to the Income Tax Act, cash transactions exceeding Rs.2 lakh in a single day are not allowed.
- If you deposit or withdraw more than this limit, you may receive a tax notice.
- It is always safer to conduct transactions through digital methods to stay compliant.
10. Declare Interest-Free Transfers to Family Members
Transferring large sums of money from your savings account to family members may attract tax scrutiny.
- If the transferred amount exceeds the exempted limit, it needs to be declared as a gift in your tax return.
- Failing to declare such transfers can lead to penalties or audits by the tax department.
By following these rules, you can ensure that your banking transactions remain transparent and legal. Keeping track of your savings account activity, adhering to tax laws, and maintaining proper documentation will help avoid unwanted tax scrutiny and penalties.
