Know the Current Account Tax Limit in India (2024)

What is a current account?

In personal banking, a current account is a type of bank account designed for easy access to deposited money for everyday banking needs. Unlike savings accounts that offer interest for keeping the account holder’s money saved, current accounts don’t usually accrue interest. While there is a certain limit on savings accounts for cash withdrawals, current accounts offer unlimited cash withdrawals.

Why do businesses hold current accounts?

Businesses typically make many more financial transactions than individuals. These transactions involve depositing, withdrawing, and transferring cash. However, savings accounts often limit the number and amount of transactions allowed. This makes them a poor fit for businesses, especially as their operations grow.

Current accounts address this limitation by providing unlimited transactions and higher cash deposit limits. They also offer features that benefit businesses, such as overdraft facilities and advanced payment solutions. These features are ideal for sole proprietorships, LLPs, and private and public companies.

TDS on cash withdrawals from current accounts

Generally, there is no income tax applicable to a current account. However, banks are mandated to deduct TDS under Section 194N if the total cash withdrawn exceeds the specified limit. If you have two or more current accounts in a bank, the aggregate cash withdrawal amount should be considered. If a bank withholds taxes on a current account, it can result in penalties to the bank.

Here is how TDS is to be deducted from taxable withdrawals from the current accounts:

• Cumulative cash withdrawals totaling up to ₹20 lakh incur no TDS if an Income Tax Return (ITR) has been filed for any of the preceding three years or if no filing has occurred for all of the past three years.
• For cumulative cash withdrawals ranging between ₹20 lakh and ₹1 crore, no TDS is applicable if an ITR has been filed for any of the preceding three years. However, a 2% TDS is levied if no income tax return is filed for all of the last three years.
• Cash withdrawals aggregating above ₹1 crore trigger a 2% TDS if an ITR has been filed for any of the preceding three years. Conversely, a 5% TDS is imposed if no ITR filing has occurred for all of the past three years.

Entities exempt from Section 194N TDS on cash withdrawals

Below is the list of entities exempted from TDS on cash withdrawal u/s 194N:

• Central or state government
• Private or public sector banks
• Cooperative banks
• Post office
• Business correspondents of banks
• White-label ATM operators
• Central government-designated commission agents or APMC traders paying farmers for agricultural produce
• RBI-licensed Authorized Dealers, their franchise agents, sub-agents, and FFMCs
• Any other individual or entity as notified by the Government in consultation with RBI.