Withdrawing large amounts of cash from your bank account is not illegal, but transactions above certain limits come under the Income Tax Department's scrutiny. If your total cash withdrawals from one or more bank accounts exceed Rs 10 lakh in a financial year, banks and other financial institutions are required to report the details to tax authorities.
Under the Income Tax Department's reporting framework, banks, cooperative banks and post offices must report cash withdrawals exceeding Rs 10 lakh in a financial year from savings accounts.
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Is PAN mandatory?
Yes. Permanent Account Number (PAN) details are generally required for high-value banking transactions. Financial institutions link such transactions to the account holder's PAN and report them to the Income Tax Department.
The rule does not look at a single transaction. Instead, it considers the total amount of cash deposited or withdrawn during an entire financial year.
For example, if a person deposits Rs 2 lakh in April, Rs 3 lakh in August and Rs 5 lakh in December, the total cash deposits become Rs 10 lakh. Once this limit is crossed, the bank is required to record and report the PAN details.
Cash Withdrawals
Cash deposits of Rs 10 lakh or more in one or more savings accounts during a financial year are reported to the Income Tax Department under Statement of Financial Transactions (SFT) rules.
According to the Income Tax Act, some of the transactions are treated as specified financial transactions i.e. if, during a particular financial year, any person is depositing cash aggregating Rs 10 lakh or more in a savings account, then the bank will be required to report such transaction.
Similarly, if total cash withdrawals across bank, co-operative bank or post office accounts reach Rs 10 lakh in a financial year, PAN details may be required.
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Reporting rules
Withdrawing more than Rs 10 lakh in cash from your bank account does not automatically trigger an Income Tax investigation. The money you withdraw is your own money and is not treated as income.
However, banks are required to report certain high-value cash transactions to the Income Tax Department through the SFT system. The tax department then uses this information, along with your Income Tax Return (ITR), Annual Information Statement (AIS), TDS records and other financial data.
For example, an investigation may occur if a person with a relatively low declared income makes very large cash withdrawals, repeatedly deposits large amounts of cash after withdrawing it, or shows transaction patterns that appear inconsistent with their reported earnings.
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