TFSA rules — the limits, and the 40% over-contribution penalty
A tax-free savings account has two limits: R46,000 per tax year and R500,000 over your lifetime. Inside those limits, every rand of growth — interest, dividends and capital gains — and every withdrawal is completely tax-free.
Two rules catch people out: withdrawals never restore your contribution room, and anything you put in above the limit is penalised at 40% — contribute R10,000 too much and SARS takes R4,000 of it.
The two limits
The annual limit is R46,000 per tax year (March to February). The lifetime limit is R500,000. Both count the money you put in — not what the account grows to. An account can grow to R2 million and stay entirely tax-free; the limits only ever measure contributions.
Unused annual room does not roll over. Contribute R30,000 this year and the other R16,000 is gone — next year starts fresh at R46,000.
What "tax-free" actually covers
Inside the wrapper, every tax that normally applies to investments is switched off:
- No tax on interest earned — the exemption thresholds outside a TFSA are irrelevant here
- No dividends tax — the 20% that is withheld on ordinary shares is not withheld inside a TFSA
- No capital gains tax when investments inside the account are sold
- No tax on withdrawals — the money comes out exactly as it stands
The asymmetry most people miss
Withdrawals do not give contribution room back — not annual, not lifetime. Take R20,000 out in June and you cannot "re-contribute" it in December without that R20,000 counting against your limits all over again.
Played out over a lifetime: someone who contributes R100,000, withdraws it, and contributes another R100,000 has used R200,000 of their R500,000 lifetime room — even though only R100,000 is currently in the account. Every withdrawal permanently shrinks how much tax-free compounding the wrapper can ever hold.
The 40% penalty
Contributions above the limit are taxed at 40% of the excess — a flat penalty, regardless of your bracket. Put in R56,000 in one tax year and the R10,000 excess triggers a R4,000 penalty. That is the single fastest way to lose money in a product designed to never lose any to tax.
The penalty applies to the excess above either limit — blowing past the R500,000 lifetime cap costs 40% of the overshoot just the same.
One limit across every account
The limits belong to the person, not the account. A TFSA at one bank and another at an investment platform share the same R46,000 and R500,000 — and neither provider can see the other. SARS adds them up at assessment, which is exactly how accidental over-contributions happen.
Moving a TFSA between providers has its own rule: it must be done as a formal TFSA transfer, provider to provider. Withdrawing from one and depositing into the other counts as a withdrawal (room permanently gone) plus a new contribution (room used again) — and can trip the 40% penalty in the process.
Where the TFSA fits
The TFSA is one of two big tax wrappers available to South Africans — the other rewards you upfront instead of at the end. How the two deals compare, bracket by bracket, is covered in "RA vs TFSA — the limits, and which saves more tax at your bracket".
Terms used on this page
- compounding
- Growth on growth: returns earn their own returns. It is why time in the market matters more than the size of any single deposit.
Reviewed July 2026 · 2026/27 tax year figures