Do you really have to pay 84% tax on cash at home?

Over the past few days, social media has been flooded with claims that people will be forced to pay '84% tax on cash' kept at home. These posts have created a lot of confusion, but the claim is misleading.

Experts have clarified that you do not pay 84% tax just for holding cash at home. The high tax rate applies only when the money is treated as unexplained income under specific sections of the Income Tax Act.

Abhishek Soni, CEO & Co-founder of Tax2win, explains it simply: “The Income Tax Act doesn’t tax cash that is legally earned, properly recorded, and backed by documents. There’s no limit on how much cash you can keep at home, and keeping cash doesn’t trigger any tax by itself.”

When does the ‘84% tax’ actually apply?

"The 84% figure is connected to unexplained money, not normal household cash. Under Section 115BBE, if the tax department finds cash during a search and you cannot explain where it came from, it may be treated as unexplained income," said Abhishek Soni.

"Sections 68, 69, 69A, 69B, 69C, and 69D cover unexplained income and assets, while Section 115BBE governs their penal taxation. If you have cash for which you are unable to explain a justifiable income source, it is taxed at 60% along with a 25% surcharge and 4% cess, resulting in an effective 78% with no tax benefits or exemptions. If such income is not disclosed in the ITR under Section 139 and tax is not paid, the assessing office has the power to levy an additional 10% penalty under Section 271AAC of the act, taking the total impact to roughly 84% of the unexplained amount," said CA Chandni Anandan, tax expert at ClearTax

If you cannot explain the source, the cash may be taxed as unexplained income. "Such a tax rate of 60% will be further increased by a 25% surcharge, 6% penalty, i.e., the final tax rate comes out to be 84% (including cess). Provided that such 6% penalty shall not be levied when the income under Section 68, 69, etc., has been included in the return of income and tax has been paid on or before the end of the relevant previous year," as per the income tax department.

Can you get a notice for depositing large cash?

For regular taxpayers, cash that comes from clear sources, like bank withdrawals, salary savings, documented gifts, or any amount you can explain, doesn't attract this tax. The high tax rate applies only to cash that cannot be explained, typically discovered during assessments, surveys, or search operations.