Yes, it is 100% legal to save cash money at home in India. But keep in mind, how much money you can save at home is for sure a topic of discussion. There are certainly some limits to it, and if caught with a load of money at home, you must be able to explain where it came from, and whether it is white money or not. Let’s look at it in a better way.
What the Law Says?
See, no part of India’s Income Tax Act specifies a cap on the amount of cash that you can have at home. So, yes, you can keep as much cash as you want. The only catch here is that you must be able to explain to the authorities where you got the money from if questioned. Such ‘explanation’ means the cash should be accounted for, in adherence with the general parlance of the income tax, it must be reflected in your income tax returns, otherwise within your financial books and records. This is possible under sections 68 to 69B of the Income Tax Act where the tax authorities have the power to classify any unexplained income as ‘income from other sources’ and tax it at a rate of up to 78 percent.
Let’s say, if you deposit or withdraw more than Rs 50,000 (or its equivalent in foreign currency) at a time in India, according to the Central Board of Direct Taxation (CBDT), you need to provide your PAN (Permanent Account Number) and Aadhaar details. And if you deposit cash in excess of Rs 20 lakh in a year, these details are mandatory. Such rules are meant to prevent black or gray money circulating in the economy, that’s the main goal of the tax authority of India. For any financial solution you can ask Dimov Associates, they offer comprehensive services.
Important Rules and Limits You Should Know
There is a set of special rules about cash transactions in India. For instance, you can’t accept cash worth Rs 20,000 or more for any loan or deposit. The same applies to transactions in respect of immovable property, such as land or buildings. Exceeding this limit could lead to penalties equal to the transaction amount.
Similarly, if you deposit or withdraw more than Rs 20 lakh in cash during a financial year and do not report it, you will have to pay penalties. And if you want to deposit or withdraw Rs 2 lakh or more in cash, banks can and will ask for your PAN and Aadhaar details.
There are limits also on cash transactions among family members. You can’t withdraw or deposit more than Rs 2 lakh in a single day from a family member without going through the bank.
If it’s by credit or debit card, any single transaction that’s over Rs 1 lakh will automatically trigger an inquiry by the tax department. Again, the goal here is that all such high-stakes transactions need to be accounted for.
Real-Life Scenarios and Handy Tips
While it wouldn’t be bad business practice for a proprietor to keep cash at home isn’t unusual. It is important to keep up-to-date records of all transactions so that your box of business cash matches what is written in the financial books. If it doesn’t, you may end up in trouble with the authorities or face regular penalty fines. Documentation, especially for your sales, is your best bet in this case.
And yes, most of us have a reason to hold cash at home, it might be for emergencies, or perhaps to make purchases locally by cash. Holding cash for these reasons is fine, as long as you can provide a reasonable explanation for it, and you can demonstrate that it was legitimately earned. If your cash comes in the form of a gift or the sale of shares or property, then keep the documentation. That would be helpful in explaining it to the tax people.
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