Cash deposits in bank accounts

Under the Indian Income Tax rules, banks are required to report significant cash deposits made into accounts, including savings, current, and even overdraft accounts, to the Income Tax Department through the Annual Information Statement (AIS).

1. Cash Deposit Limits:

   • There is no specific limit for cash deposits in an overdraft account that attracts separate income tax provisions. However, banks are required to report cash deposits exceeding ₹10 lakhs in a financial year across all types of accounts, including savings and current accounts.
   • If the cash deposit in an overdraft account crosses this threshold, banks will report it in the same way as for savings or current accounts.

2. Reporting in AIS:

   • 
     AIS reflects all high-value transactions, and cash deposits in overdraft accounts will also be reflected if the transactions meet the reporting criteria.
   • Any cash deposit in an overdraft account that crosses the threshold will likely appear in Form 26AS and the AIS​​.

3. Cash Withdrawal from Overdraft Accounts:

   • As for cash withdrawals, while there isn't a specific income tax rule directly governing withdrawals from overdraft accounts, large cash withdrawals (exceeding ₹1 crore) from an overdraft account are subject to Tax Collected at Source (TCS) under Section 194N of the Income Tax Act.

In summary, there is no special exemption for overdraft accounts, and they are treated similarly to savings and current accounts in terms of cash deposit reporting under the Income Tax rules. The transactions, including deposits, are reflected in the AIS.

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In India, the Income Tax Department has set guidelines for reporting cash deposits by banks to prevent tax evasion and to monitor suspicious transactions. While the rules specifically target deposits in savings accounts and current accounts, let's discuss how these apply to overdraft accounts and the associated regulations.

1. Limit for Cash Deposits in Overdraft Accounts:

As per the Income Tax Act, banks must report cash deposits exceeding certain thresholds to the authorities. These thresholds are:

• 
  Savings Accounts: Banks must report cash deposits exceeding ₹10 lakhs in a financial year.
• 
  Current Accounts: Cash deposits exceeding ₹50 lakhs in a financial year must be reported.

However, the Income Tax Act does not specify any specific limit exclusively for overdraft accounts (whether secured or unsecured). But the general rules for current accounts tend to apply to overdraft accounts too, because overdraft accounts are often categorized under current accounts for businesses or individuals.

Thus, if the cash deposits in your overdraft account exceed ₹50 lakhs in a financial year, it is likely that the bank will report the transactions to the Income Tax Department.

2. Are Banks Required to Report Cash Deposits in Overdraft Accounts?

Yes, banks are required to report large cash deposits in overdraft accounts, similar to savings and current accounts. Specifically:

• 
  Overdraft accounts (particularly if they function like a current account) are subject to the same rules as current accounts.
• The bank must report cash deposits of ₹50 lakhs or more in an overdraft account to the Income Tax Department.

If an overdraft account is a personal or business overdraft facility linked to a current account, then the same rules apply as for current accounts.

3. Cash Withdrawal Rules from Overdraft Accounts:

There are generally no specific restrictions or limits on cash withdrawals from overdraft accounts, provided you remain within your sanctioned overdraft limit. However, a few key points to consider are:

• 
  Overdraft Limit: You can withdraw funds up to the approved limit of the overdraft facility.
• 
  Interest Charges: You will be charged interest on the amount you withdraw from the overdraft, so it’s important to manage withdrawals to minimize interest costs.
• 
  Repayment: Overdraft facilities are usually revolving credit, so you can repay and re-borrow as needed, but repayments are essential to stay within the approved limit.

For cash withdrawal monitoring by the Income Tax Department, there are specific thresholds for large cash withdrawals:

• 
  TDS on Cash Withdrawals: Under Section 194N of the Income Tax Act, banks must deduct TDS (Tax Deducted at Source) at the rate of 2% if cash withdrawals from any account (including overdraft accounts) exceed ₹1 crore in a financial year.

For people who have not filed income tax returns in the last three years, the TDS on cash withdrawals applies at lower thresholds:

• 
  ₹20 lakhs to ₹1 crore: TDS at 2%.
• 
  Above ₹1 crore: TDS at 5%.

For your follow-up query :

There is no rule as per income tax for deposit or withdrawal. 

Only it should justify based on your transactions reporting and beyond threshold will have TCS applicability