Tax Implications of Holding a Current Account | AU Small Finance Bank
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Tax Implications of Holding a Current Account

    If you do any high-value transaction, there may be a possibility that you may get a notice from the Income Tax (IT) department to provide more details about these transactions. So, if you are making cash deposits or withdrawals beyond the prescribed limits from a deposit account, you must reveal it while filing Income Tax Return (ITR). But do businesses holding Current Accounts also come under the tax radar even as the account is mainly used for managing small or large transactions & payments? In this article, let's understand the tax implications applicable to Current Accounts. 

     

    Significance of Current Account 

    For business customers across industries, conducting transactions regularly is often the most significant requirement, apart from other responsibilities. To manage such payments & transactions, opening a Current Account is necessary. The account aids businesses in carrying out large volume transactions via demand drafts, cheques, and pay orders at zero or nominal cost. Entrepreneurs, businesspeople, and individual professionals can now apply for Current Account online with AU Small Finance Bank to manage all business-related transactions.  

     

    Current Account Interest Rate 

    The Current Account is a non-interest-bearing account. Since the account does not generate any interest, the account is tax-free. However, Tax Deducted at Source (TDS) will be applicable on cash withdrawals done through the account. Let’s understand this in detail:

     

    TDS on Cash Withdrawals from Bank Accounts

    As per the new Section 194N of the IT Act, “no tax will be deducted for Current Account, Savings Account or Overdraft Account if the amount withdrawn in cash does not exceed INR 1 crore.” TDS is implemented on all account types by the banks if the cash withdrawal from any of the Bank Accounts is more than INR 1 crore, with effect from 1st September 2019. This rule is applicable if you hold multiple accounts within the same bank. But if you make cash withdrawals exceeding INR 1 crore with different bank accounts, TDS won’t be applicable u/s Section 194N.

    Below are the TDS rates as per the new provision under Section 194/N w.e.f 1st July 2020:

    Aggregate cash withdrawals If ITR is filed for ANY of the 3 previous years If ITR is not filed for ALL of the 3 previous years
    Up to INR 20 lakhs NIL NIL
    Exceeding INR 20 lakhs but up to INR 1 crore NIL 2%
    Exceeding INR 1 crore 2% 5%

    Let’s help you understand with an example:

    • Assuming you have three Bank Accounts with AU Small Finance Bank
    • The aggregate of your cash withdrawal is INR 1.2 crores in FY 2020-21
    • You have filed ITR for the previous 3 years
    • Since the cash withdrawal has now exceeded the limit of INR 1 crore, then 2% TDS will be levied by AU Bank. So, the calculation would be [2%*(INR 1.2 crore – INR 1 crore)]
    • The bank will deduct INR 40,000 from your account
     

    Apply for a Current Account with AU Bank.

    You can easily apply for a Current Account online by filling out the form online. Select from the different types of Current Accounts: AU Regular Current Account, AU Vishesh Current Account & AU Power Current Account. To apply, you can also visit our bank branch or call customer care at 1800-1200-1200 or email us at [email protected]. Existing customers can get in touch with AU Bank's dedicated relationship manager. 

     

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