Income Tax Rules : The line at the Punjab National Bank branch in Connaught Place, New Delhi, was uncharacteristically long last Thursday.
Customers gathered in small clusters and gossiped about the Finance Ministry’s announcement the night before.
Is it true that now only ₹50,000 cash deposit can be made without PAN card? (Does this mean that we can only deposit ₹50,000 in cash without a PAN card now?) an elderly man asked the customer service representative, his voice echoing that of millions of Indians navigating through a haze of confusion since the government introduced its most recent changes to cash transaction rules.
After having toured bank branches for a week, talking to tax professionals and having attended a seminar by the Institute of Chartered Accountants of India, and I’ve put together a full lowdown and analysis on new cash transaction limits that are going to hit almost everyone with a bank account in the country.
Income Tax Rules The New Cash Transaction Framework
The finance ministry’s new amendments to the Income Tax Act have now done away with that, dictating how money can be deposited, withdrawn and transferred through banking channels.
The changes, which will be implemented from October 1, 2025, are the biggest overhaul of the rules for cash payments since the country’s sudden demonetization four years ago.
Income Tax Rules Cash Deposits: Increased Thresholds and Documentation
The key reduction comes in cash deposits, with new threshold values that dramatically reduce limits for unrecorded transactions – viable and necessary in a country where 98% of transactions are in cash:
Single Transaction Limits:
Up to ₹50,000 cash deposits without extra documentation (lower from the existing ₹2 lakh)
For deposits of more than ₹50,000 and less than ₹2 lakh, PAN or Form 60 (for those not having PAN) is a must.
Above ₹2 lakh, depositors need to provide PAN, declare the source of funds, and can be subject to automatic notification to the income tax department
Aggregate Monthly Limits:
Total cash deposit more than ₹1 lakh per month in all accounts of a person will require submission of Form 60/61 regardless of the amount of individual deposit
The PAN-linked system will monitor the cumulative deposits in banks.
“The change from tracking the individual transaction to watching monthly aggregates is huge,” said Vikram Chandra, a tax consultant I visited at his office in Delhi’s Lajpat Nagar.
“People have historically been able to structure deposits to avoid detection. “This is your cumulative cash footprint across all of your accounts you have with us now,” adds the system.
At the Vasant Vihar branch of HDFC Bank I visit, staff is seen grappling with how to communicate these subtle shifts to consumers.
“We’re just waiting for a clear operation guide from our head office,” said a branch manager who spoke on condition of anonymity.
“The issue is going to be how do you implement the rules without creating severe problems with respect to how quickly you give customer service?
Income Tax Rules Cash Withdrawal Limit Restrictive Measures
The new system consists of similar measures for money withdrawals:
Four Cash Withdrawals for a Single Transaction:
Withdrawal of cash up to ₹1 lakh is not restricted
Will need a declaration on purpose for withdrawals of ₹1-3 lakh
INCOME TAX RULES Cash withdraws of over ₹3 lakh will require the client to give a 48-hour notice to the income tax department.
Total Withdrawals for the Month:
If withdrawals are more than ₹3 lakh per month, not just from an account, but from all put together, the income tax department will get automatically notified
Businesses under GST and with a good compliance track record will have higher threshold of ₹ 5 lakh per month.
“For the typical salaried person, there should not be too much disruption from these limits,” said Rajiv Nair, a bank compliance officer I quoted.
“But for cash-heavy small businesses, wedding expenses or medical emergencies, the new rules could represent real headaches.
I saw it first-hand at a State Bank of India branch in Gurgaon when a small business owner reacted almost in tears to news of the new withdrawal limits.
“I pay my workshop workers in cash every week. Now I will have to make declarations every month just to be able to conduct my business,’’ he said.
Income Tax Rules THE DEATH OF THIRD PARTY CASH TRANSFERS
Perhaps most stringent — and the area of biggest interest to third-party plaintiffs — the new regulations relative to cash third-party transactions:
Account-to-Account Cash Deposits:
Now, you cannot deposit more than ₹25,000 in cash deposits in another person’s account in one go.
₹50,000 limit per month for third party deposits in to any account
Only immediate family members (father, mother, children, spouse), relationship certificate submission is required for this fast track provision.
Documentation Requirements:
All third party cash deposits above Rs 25,000 shall be subject to source investigation |
Just as it is important to keep track of the PAN, you need to capture the number as shown on the PAN card for all cash depositsReceived numbers don’t match
Depositor needs to give his mobile number that is linked to Aadhaar for verification
Deposit over ₹10,000 now needs relationship declaration
On the sidelines of an ICAI seminar I attended in Noida, chartered accountant Suresh Agarwal had explained the implications: “This is nothing but an end of the use of others’ accounts for movement of cash.
The banking system will have full track of who is depositing cash where irrespective of account ownership.”
Income Tax Rules Enforcement and Penalties
What gives these regulations teeth are dramatically increased penalties for noncompliance:
For Account Holders:
Non-compliance with prescribed documentation: Fine of ₹10,000 for every contravention
Misrepresentation of nature of transaction: 10% of the value of such transaction
Organized deals to avoid limits: Penalty-100% of the amount and prosecution potential
For Banks:
Non-adherence to norms for identification of clients and compliance of KYC guidelines: ₹25,000 for each transaction
Late reporting of threshold transactions: A penalty of ₹50,000 per day for every day of delay
Pattern-based scheme for suspicious transaction structure detection
“The penalties have been structured in such a way that there is no way around compliance,” said Neha Gupta, an Income Tax officer who addressed the ICAI event.
“The department’s systems have been updated to detect pattern-based evasion efforts across accounts and banks.
Income Tax Rules Exceptions and Particularities
Because cash-intensive businesses, like those mentioned above, are legitimate, the regime also contains some exceptions:
Agricutural Income: Farmers who have fully documented land records can deposit upto ₹3 lakh during crop season without scrutiny if this is in line with the declared income and cropping pattern, whereas Income Tax Act defines agricultural income to be exempt from tax if the income is provided by the land used for agricultural purposes.
Medical emergency-Hospitals and medical are subject to simplified procedures for verification for exemption in respect of emergency cash payments even for post-facto documentation
Wedding-related Expenses: An application for withdrawal in a greater amount from a persons own accounts including that of a third party can be made, provided the withdrawal limit is predetermined and the account has been pre-registered for KYC.
A one-time transaction can be restarted within a span of three months.
Business Banking: In case of the Business Banking, entities having GST registration and turnover less than ₹1.5 crore will now get extended threshold provided their GST and income tax filing portray a constant cash pattern.
“These exclusions recognize that there may be genuine situations in which cash is needed,” said tax practitioner Anand Sharma while I discussed the changes at his Karol Bagh office.
“But now the burden has simply been moved from the transaction time to being done in a pre-approval and post-validation process.”
The technology behind deploying it
Its implementation is predicated on technology infrastructure that has been years in the making:
PAN-Level Aggregation: All issuing banks currently report to a centralized database, aggregating transactions by PAN instead of account number
AI-based Monitoring Systems: The system uses sophisticated algorithms to detect abnormal behaviour or structured deals crafted to get round thresholds
Real-Time Reporting: No longer do you have to submit in batches (reports are being processed in near real-time rather than a batch).
It wasn’t until I visited an IT implementation team at a public sector bank – they insisted on not being named – and was given a few demos of the monitoring dashboards I realised they were actually useful.
The system can now recognize split deposits across multiple branches or banks that are on similar timing tracks,” said a senior systems analyst. The era of structuring transactions is largely history.
Income Tax Rules Practical Implications for Various Clienteles
Customers will be impacted by these rules differently:
Salaried Individuals
It’ll be small beer to your average salaried employee – most transactions are digital already.
But episodic major cash needs – to install a new kitchen or hold the family wedding and reception – will have to be planned for in advance and documented.
“I was in line to withdraw ₹4 lakh ahead of my daughter’s wedding shopping,” said Sunita Verma, a government employee I met at a bank branch in South Delhi.
“Now I’ll have to provide all of these detailed breakdowns and forms in advance. It’s a further headache in an already difficult time.”
Small Business Owners
The most significant adjustments affect cash-intensive small businesses. The proprietor of a small grocery store at Lajpat Nagar detailed out his predicament, “I get 40% of payments in cash so I need to make similar payments for my suppliers.” And now I’m going to be filing declarations and explaining the entire time.’
For the latter, the shift will mean either shifting more transactions to digital forms, or setting up a more formal management of cash with proper records.
Customers in Rural & Semi-Urban Areas
The rules are especially challenging in places with weak digital infrastructure. In a phone interview with a bank manager of a remote rural branch in Haryana, he said, “Our customers are not the digital savvy type.
It would be very difficult to explain these complicated rules, and to help them comply.”
Special assistance is being planned by the banking system for these sections, including easy Hindi and regional language forms and dedicated help desks.
Preparing for the New Regime
According to interviews with tax professionals and bank executives, here are the steps account holders should take before implementation in October:
Update KYC: Discharge your responsibility by keeping your mobile number, email id and address updated with all bank’s Mutually:Credited forth as possible_FLAG — Chandani Churlia_OUTPUT (@BeeAnover) October 12, 2019 Also Read BANK KYC setAddress updated.
PAN-Linkage: Ensure your PAN is linked properly with all accounts and Aadhaar
Analyze Patterns of Cash: Examine your previous cash transaction activity to determine any potential compliance instances with the new regulations
Business Banking Separation- keep separate to clearly identify where cash comes and goes for business owners
Digital Transition Planning: Identify transactions that can move to digital to reduce the need for cash handling
“The key is preparation,” said chartered accountant Rajesh Singhania at the ICAI seminar. “Those analysing their compliance in October are going to be very heavily disrupted.”
“As banks switch over to this sweeping new regime, every customer across India will have to completely change the way they manage cash.
The tradition of operating informal and unrecorded cash transactions within the banking system now seems to be coming to an end.