Withholding large amounts of cash at home is a common practice in India, but that invariably raises questions on its legality and subsequent income tax scrutiny. Quite a number people wonder- Is there any legal limit on how much cash can be stored at home? What happens if tax officials come across some unexplained money during a raid?
Let’s break down the rule and try to clarify what goes and what does not under income tax laws.
Is there a legal cash limit for storing money at home?
The Income Tax Department has not prescribed any maximum limit for retaining cash at home. Therefore, essentially anything, ₹10,000 or ₹10 lakh, can be retained legally, provided the source is explainable.
However, since if tax officials find a bulk amount of cash during a raid, they would want to question the source of this money. Unless you have legitimate proof to substantiate the income, the money could be considered “undisclosed income,” resulting in heavy penalty and/or criminal prosecution.
What Does the Income Tax Act Say Regarding Unexplained Money?
With respect to unexplained money, the Income Tax Act of 1961 under Sections 68 to 69B provides for treating any such unaccountable income-the income that cannot be explained properly with the records. Here is what could happen if you failed to explain the source:
- Whole amount may get added to your taxable income.
- Tax rate up to 78% (including penalties) could be applicable.
In extreme cases, prosecution may be initiated.
Essential Points to Remember:
- No fixed cash limit at home-but reveal the source.
- Cash transactions above the threshold should be reflected in ITR record.
- Businessmen must ensure that their cash books match with their financial statements.
- Even non-business persons should secure evidence of cash withdrawals, gifts, etc., or other legitimate sources.
How to Protect Yourself from Income Tax Scrutiny
Document Every Major Cash Transaction-Whether it is savings, business earnings, or gifts, it is wise to keep bank statements, receipts, or affidavits as proof.
File Your ITR Correctly-All possible income sources should be declared, as this saves you from confrontations later on.
Don’t Hoard Any Unaccounted Cash-If you have large cash savings, putting this in the bank lends accountability.