Are you risking an 84% penalty by holding unaccounted cash at home? CA on rules that can bring you under scanner

Tighter income tax regulations have brought renewed scrutiny to individuals who keep large sums of cash at home without a clear, legitimate explanation. Under the revised rules, if the Income Tax Department discovers unexplained cash during a search, it can impose a steep 84% penalty, which includes tax, surcharge, cess, and additional penalties.

According to Chartered Accountant Sarthak Ahuja, "The new income tax regulations will impose 84% tax on all the cash that they find lying at your place." The move is part of the government’s broader push to curb unaccounted money and increase financial transparency.

Property sale

Authorities are also tightening oversight on property-related transactions and other high-value cash receipts. Experts point out that accepting cash beyond certain thresholds can attract severe penalties. Ahuja explained, "If you sell any immovable property and receive cash of more than ₹20,000 against it, a 100% penalty will be imposed. If you receive more than Rs 2 lakh in cash from one customer in a day, then a 100% penalty will be imposed on the entire amount." These measures aim to discourage the use of cash in large transactions and strengthen compliance with mandatory reporting rules.

Loans from family, friends

Cash-based loans between friends and family—a common informal practice in India—are also strictly regulated. The law now prohibits borrowing or lending large sums in cash. CA Sarthak Ahuja noted, "If you take any loan from someone in cash, you will have to pay a 100% penalty on that amount, as no loans are allowed to be taken in cash." This is intended to reduce untraceable financial transactions and encourage people to use formal, documented channels.

Ahuja added, "If you have unexplained cash at your home that the Income Tax Department finds, it will attract an 84% penalty… But how do you think the Income Tax Department shall find out?" He emphasised that sophisticated data analytics tools help the Department detect discrepancies between declared income and suspicious cash movements.

Even routine banking transactions can trigger alerts. As Ahuja warned, "If you withdraw more than Rs 10 lakh as cash from your savings account in a year, the bank will report it to the tax department. If you withdraw more than Rs 20 lakh, the bank will deduct TDS. And if the tax department feels there is something shady, they can launch a search and seizure against you." This heightened oversight increases the likelihood of scrutiny for individuals holding substantial unexplained cash.

Ahuja highlighted:

> Banks report to the tax department if cash withdrawals from a savings account exceed ₹10 lakh in a financial year.

> If cash withdrawals go beyond Rs 20 lakh in a year, Tax Deducted at Source (TDS) will be applied by the bank.

> If the tax department finds the pattern of cash withdrawals or holdings suspicious, it can initiate a search and seizure operation.

> Receiving more than Rs 20,000 in cash when selling any immovable property can attract a 100% penalty on the cash component.

> Accepting over Rs 2 lakh in cash from a single person in one day can result in a 100% penalty on the entire amount received.

> Taking any loan in cash is prohibited and can lead to a 100% penalty on the loan amount.

Income tax notices: when and why they arise

Income tax notices are formal communications issued by the Income Tax Department when it detects errors, mismatches, missing information, or potential non-compliance in a taxpayer’s records. These notices, generated under various sections of the Income Tax Act, may call for clarification, supporting documentation, or payment of additional tax and interest.

According to ClearTax, common reasons for receiving a notice include:

TDS mismatch: A difference between the Tax Deducted at Source reported by an employer or other deductor and the figures reflected in Form 26AS or AIS.

Discrepancies in returns: Omission of income (such as interest on fixed deposits), claiming deductions under incorrect sections, furnishing incomplete information, or seeking an excessive refund.

Documentation requests: The department may seek proof of income, deductions, or exemptions claimed in the return.

Non-filing of returns: Failure to file returns for one or more years can prompt reminders and may result in penalties and interest.

Clubbing of income: Income from investments or assets held in a spouse’s name may still be taxable in the original earner’s hands under clubbing provisions.

High-value transactions: Large cash deposits, substantial credit card spending, or significant investments can trigger verification.

Random scrutiny: Returns may also be selected for detailed scrutiny, requiring the taxpayer to respond within prescribed timelines and furnish relevant records.