Many bank customers assume they are free to withdraw any amount from their accounts since the funds already belong to them. However, there are regulations governing large cash transactions, and they must be complied with to avoid scrutiny from the income tax department.
While there is no prohibition on withdrawing more than ₹10 lakh from a bank account in a financial year, high-value cash transactions are subject to reporting requirements and other tax provisions under the income tax law.
Here are the reporting requirements and other details.
Are there any tax implications of withdrawing such a large sum in a year?
According to Ashish Jha, an Internal Audit Officer at a PSU, cash withdrawals from a bank account are generally not subject to income tax if the taxpayer can satisfactorily explain the source of the funds. He added that where the bank account has an established transaction history and the withdrawals fall within the prescribed reporting thresholds during a financial year, then such cash withdrawals will not be subject to .
As per the prescribed threshold, people must report large cash transactions over ₹10 lakh (in a savings account) or ₹50 lakh (in a current account) to the Income Tax Department via Statement of Financial Transactions (SFT), Jha noted.
“Thus, taxpayers must maintain adequate records to prove the source of their funds to avoid penalties, interest, and taxes by the Revenue Authority,” he added.
Additionally, if an individual has made cash withdrawals greater than ₹20 lakh in a financial year, they may be subject to tax deducted at source (TDS) under Section 393(3)(3) of the Income Tax Act.
Does withdrawing such a large amount trigger scrutiny from the tax department?
No, a bank account cash withdrawal of over ₹10 lakh does not mean that the IT department will automatically review the transaction. Cash is not classed as income by itself and is not normally taxed if the cash originated from a source that can be substantiated, Jha added.
However, he added, the IT department has a risk-based system for computing risk scores, which considers the data provided from the (ITR), annual information statement (AIS), statement of financial transactions (SFT), TDS and TCS, as well as other sources such as third-party documents.
“The Department will commence scrutiny on a taxpayer whose large cash withdrawals are compared with their declared income; if they subsequently make large cash deposits; if there are unusual patterns of cash withdrawals; or where there is a risk of concealing income or tax evasion,” the expert said.
How do banks report high-value cash withdrawals to the income tax department?
Banks are required to monitor and report specified transactions to the income tax department through SFT under Section 508 of the Income Tax Act, 2025.
“In the case of cash withdrawals, banks report transactions where the aggregate cash deposits or withdrawals in one or more current accounts of a person exceed the prescribed threshold during a financial year,” Jha said.
The information reported through Form 165 generally includes the account holder’s name, PAN or Aadhaar number, account number, nature of the transaction, aggregate amount of cash withdrawn and details of the reporting bank. The tax authorities use this information for risk assessment and verification purposes, and it may reflect in the taxpayer’s AIS, according to the expert.