New Tax Rules With Major Banking Updates: You Must Know These Changes in May 2026

Overview

If you have missed the April 2026 tax updates, you must understand them now in May 2026 as these new bank transaction rules, cash limits and PAN requirements can impact your finances.

From April 1, 2026, the new Income Tax Act, 2025, mandates strict financial compliance, including a ₹10 lakh annual limit for aggregate cash deposits/withdrawals, triggering PAN reporting. Key changes include a ₹20 lakh limit for property transactions and tighter cash penalties.

ATM Withdrawal Limits & Charges (From April 1, 2026)

From April 1, 2026, banks in India have introduced revised ATM usage rules, impacting free transaction limits, withdrawal charges, and interchange fees. These changes were approved by the Reserve Bank of India.

Key Changes:

• You can withdraw freely 3 times in a metro city and 5 times in non-metro cities per month. After that, each withdrawal will attract ₹23 + GST as withdrawal charges.
• PNB has reduced the daily ATM cash withdrawal limit to ₹50,000 (from ₹1 lakh) on selective cards like RuPay NCMC Platinum, RuPay Women Power Platinum, and MasterCard Platinum debit cards. On higher-tier cards, the limit is trimmed to ₹75,000/day (from ₹1.5 lakh). 
• HDFC Bank has included UPI-based cardless cash withdrawals within the monthly free transaction quota. Savings and salary account holders will enjoy 5 free transactions per month at HDFC ATMs. 

UPI Transaction Limits (2026)

The standard UPI transaction limit for most users remains capped at ₹1 lakh per day. However, a higher limit of ₹5 lakh per day is permitted for payments to specific categories of verified merchants.

Category-wise UPI limits:

UPI remains free for all personal (P2P) bank-to-bank transfers. A small interchange fee of 0.5%–1.1% only applies to large merchant transactions above ₹2,000 made via Prepaid Payment Instruments (wallets or credit-on-UPI).

BSBD Account Changes (Effective April 1, 2026)

The Reserve Bank of India has introduced significant updates to Basic Savings Bank Deposit (BSBD) accounts, effective April 1, 2026. These zero-balance accounts now offer expanded benefits including unlimited free cash deposits, 25 free cheque leaves annually, and a complimentary ATM/debit card with no annual charges.

A major change: UPI, NEFT, RTGS, IMPS, and PoS transactions will no longer count toward the monthly withdrawal limit, significantly boosting digital payment freedom.

Cash Deposit & IT Reporting Thresholds

For FY 2026–27, the new Income Tax Act 2025 introduces updated limits: PAN is now required if total cash deposited or withdrawn exceeds ₹10 lakh across all bank accounts during a financial year - a shift from the earlier norm triggered by a single-day deposit of ₹50,000.

Key IT reporting limits:

Only physical cash transactions through savings, joint, minor bank accounts, and post office accounts will be included in the deposit limits. Digital transfers like UPI, NEFT, RTGS are not automatically reported under SFT but are visible in the Annual Information Statement (AIS).

Also Read - Savings Bank Account Limit As Per New Income Tax Rules 2026

New Digital Payment Security Rules

The RBI has implemented a "principle-based framework" for authentication to tackle rising cases of SIM-swapping and phishing. One of the two authentication factors must be dynamic and uniquely generated for each transaction, with greater reliance on fingerprint or facial recognition.

Some banks have introduced an optional "Night Lock" where transactions between 12 AM and 6 AM require a pre-authorized biometric unlock. Additionally, before completing any transfer to a new contact, apps will perform a real-time "Name Check" against the recipient's bank records.

Liquidity Coverage Ratio (LCR) - Impact on Your Savings

As of April 1, 2026, the RBI has enforced strict new LCR norms. Banks are now required to maintain an additional 2.5% run-off factor on retail deposits linked to internet or mobile banking effectively requiring banks to lock away more cash in low-yield government bonds for every digitally-linked rupee. This means: FD rates may rise as banks incentivize customers to lock in funds rather than keep them in savings accounts.

Dormant Account Rules (From January 1, 2026)

The RBI has directed closure of: dormant accounts (no activity for 2 years), inactive accounts (no customer-initiated transaction for 12 months), and zero-balance accounts without updated KYC.

FAQs

What is the new ATM withdrawal charge after free limit from April 2026? 

After exhausting the free ATM transaction limit (3 times in metro cities and 5 times in non-metro cities per month), banks will charge ₹23 + GST per extra transaction as mandated by RBI from April 1, 2026.

What is the TDS rate on cash withdrawals from bank accounts in FY 2026–27?

TDS on cash withdrawals applies in three tiers: 2% on withdrawals exceeding ₹1 crore in a financial year for regular ITR filers; 2% on withdrawals exceeding ₹20 lakh for those who have not filed ITR; and a higher rate of 5% on the portion of withdrawals that exceeds ₹1 crore for non-filers. Banks now directly check PAN filing history in real time before releasing large cash amounts.

What are the new PAN quoting rules for bank transactions from April 2026?

PAN is now required if total cash deposited or withdrawn exceeds ₹10 lakh across all bank accounts during a financial year - a major shift from the earlier rule that was triggered by a single-day deposit of ₹50,000. For property transactions, the PAN threshold has been doubled to ₹20 lakh (previously ₹10 lakh). Business expenses paid in cash exceeding ₹10,000 in a single day to any individual will not be allowed as a deductible expenditure.

Are TDS section numbers changed from April 2026? What should taxpayers know?

Yes, this is a critical compliance change. All TDS section numbers have changed and are now classified under Sections 392, 393, and 394 of the Income Tax Act, 2025. Form 16 (annual TDS certificate for employees) has been replaced by Form 130. Form 16A is now Form 131. For transactions on or after April 1, 2026, deductors must quote the relevant section under the new Act. Quoting old section numbers such as 194C, 194J, or 194H for such transactions may result in system-level validation errors.