In today’s world, having a bank account has become a norm. Even in rural areas, the availability of banking services has expanded with the implementation of various welfare schemes. The digital age has made opening a bank account easier and quicker than ever before.
Although most of us have savings accounts, it’s crucial to know the rules and regulations related to them. For instance, there are rules in place regarding the minimum balance required in the account, what happens if there is an excess amount in the savings account, and how income tax is deducted if the balance is high. Let’s take a closer look at these rules.
There are some important regulations that apply to savings accounts. If the account holds more money than the allowed limit, there can be consequences. Financial experts suggest that maintaining a high balance in a savings account can result in a reduction in income tax.
The primary reason for imposing a cash limit on savings accounts is to prevent illegal activities such as money laundering, tax evasion, and cash transactions.
The current maximum limit for depositing money into a savings account is Rs. 1 lakh, but this limit can be increased up to Rs. 2.5 lakhs with certain permissions. Additionally, the yearly cash deposit limit in a savings account is Rs. 10 lakhs.
As long as the deposit amount does not exceed Rs. 10 lakhs, there will be no issues. However, if the deposit amount exceeds Rs. 10 lakhs, then it will be subject to tax and, therefore, must be paid.
If an individual deposits over Rs. 10 lakhs in cash during a single financial year, the respective bank is obligated to report it. As per the guidelines of the Central Board of Direct Taxes, there is no direct tax imposed on cash balances present in savings accounts.
However, the interest earned on such cash is taxable. Many banks and financial institutions offer attractive interest rates on deposits. The tax will be levied on the income tax returns based on the total income earned during the year.