TDS on Cash withdrawals from Bank – Section 194N

Recently there has been changes brought up in Section 194N of Income Tax Act,1961 which is for TDS applicability on cash withdrawal. Section 194N for TDS on cash withdrawals exceeding the threshold limit was introduced in the Finance Budget 2019 to discourage cash transactions and promote digital payments. Upto 30.06.2020, banks (private or public sector), Co-operative Banks and post offices are liable to deduct TDS on cash withdrawals under this section at 2% if the cash withdrawal exceeds Rs.1 Crore in a financial year.

However from 01.07.2020 if the withdrawer has not filed Income tax returns for all three preceding years, TDS TDS at 2% is required to be deducted if withdrawal during the year exceeds Rs.20 lakhs but less than Rs.1 crore and TDS at 5% to be deducted if the withdrawal exceeds Rs.1 crore. If income tax returns for all the three years have been filed then there is no change i.e. TDS will be deducted at 2% on cash withdrawals exceeding Rs.1 crore in a year. But if PAN is not available then TDS will be deducted at 20% instead of the applicable rate of 2% or 5%.

TDS is to be deducted at the time of cash withdrawal. TDS will be applicable only when the cumulative amount of cash withdrawal exceeds the threshold limit. Further TDS is deductible only on amount exceeding the threshold limit and not the total amount of withdrawal. For example if Mr. Akash has filed all his returns and withdraws Rs.60 Lacs in first withdrawal and Rs.50 Lacs in second withdrawals, then TDS shall be deducted on the excess of Rs.40 Lacs @2%

The taxpayers should ensure that PAN is linked to their accounts and submit details of returns filed otherwise TDS will be deducted at higher rates. The department can easily access and investigate into matter of huge cash transactions. It is hoped that withdrawal will not be deemed to be income of the recipient due to deduction of TDS and the objective of promoting digital economy is achieved.

The above article is written by CA Suyash Tripathi and can be reached at tripathi.r.suyash@gmail.com