Customers are in trouble due to abrupt closure of current accounts and TDS on cash withdrawals

1. Banks are closing current accounts of their customers abruptly without giving any prior notice/intimation to the customers if they are enjoying any credit facilities with any other Bank. Though the Circular RBI/2020-21/20 DOR.No.BP.BC/7/21.04.048/2020-21 dated August 6, 2020 by RBI is clear in this regard i.e. if the credit facilities are less than Rs. 5 Crores, then such customers can continue to have accounts with other Banks with an undertaking from the borrower as well as from the Banks to the effect that the credits in such accounts are to be periodically transferred to the Bank wherein the OD/CC facilities are availed and the balances in such accounts shall not be used as margin for availing any non-fund-based credit facilities. But Banks are closing existing accounts without giving an opportunity to the borrower. Under whose orders such actions are taken is not known.

2. As per section 194N of the Income tax Act 1961 from 01.07.2020 Tax will be deducted at source (TDS) from Bank withdrawals  in cash @ 2% if the withdrawals exceed Rs. 1 Crore during the year. If the withdrawer has not filed Income tax returns for all three preceding years in time, 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.  But if PAN is not available then TDS will be deducted at 20% from Rs. 20 lakhs onwards instead of the applicable rate of 2% or 5%. Though the Banks are given instructions on how to check the returns filed it is not known how they are discharging their duties. Though there are few exemptions the following issues are not considered:

a. Due to genuine reasons the customers would not have filed their returns in time and for that reason deducting higher amount does not seem to be reasonable.

b. What about those who are new to the filing of Income Tax Returns. They may be in the first year, second year or third year and one cannot expect them to file returns for three years.  Subjecting them to higher rate of TDS is not justifiable.

c. What about agriculturists? Since it is made compulsory, they have taken PAN card. But they are not liable to file Income Tax Return so long as their Total Income, other than agricultural income, is less than the non-taxable limit. If such TDS is made, they will be in trouble due to loss of cash availability. Compelling them to file I.T. Returns to get refund of the TDS does not seem to be reasonable.

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  1. Rohith says:

    Why agriculturists not able to file ITR to get refund. In this rule nothing is wrong. If any one is doing a transaction more than 20 lakhs, then let him file ITR. He gets time to do all these transactions, why he is not able to file ITR..???

    1. CA. M. Lakshmanan says:

      The reason is that he is not bound to file the Return of Income because his Gross Total Income is less than the maximum non-taxable limit. He is a pure agriculturist and his main source of income is agri. imcome and his income from other surces is less than Rs. 2.50 Lacs.

  2. Prof Dr RTSwamy says:

    True there is defect or default in RBI Circular dtd 16/08/20 closing AC’s without giving an opportunity to the borrower
    As per sn 194N TDS on withdrawal only with few exemptions like Agriculturists
    These require Amendments


    Well, in tune with the present trend of amendments, probably we can expect an amendment –
    199 A(i)(bBiia)
    In 194N, if anyone is an agriculturist and had so declared to concerned authorities, the list of which is to to be published in Gazette of India, and he proves to be so to the authorities concerned by the date to be notified later in Gazette of India, such person TDS will be above an amount to be stipulated by the manner in which it is to be executed, the rate3 will be as to be published with effect from the date to be specified therein

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May 2021