TDS on cash withdrawal

TDS on Cash Withdrawal (Section 194N) (Expert Guide)

The TDS on cash withdrawal from savings/current bank account under Section 194N was amended through the Union Budget, 2020. Further, the objective of inserting this provision in 2019 was to eliminate large cash withdrawals from bank accounts and phase out black money from India.

TDS on cash withdrawal under Section 194N

As per this amended Section, if an assessee has not filed Income Tax Return (ITR) for the last three financial years, then cash withdrawal from his/her savings or current bank account will attract TDS if the total amount withdrawn in a financial year exceeds Rs 20 lakh / Rs. 1 crore, as the case may be.

Earlier, through the Union Budget of 2019, Section 194-N was inserted for TDS on cash withdrawal of amounts exceeding the limit of Rs. 1 crore. In the budget of 2020, this limit of Rs. 1 crore was decreased to Rs. 20 lakhs.

Also Read: Know Types Of Certificates Of TDS

TDS Rates on Cash Withdrawal

Aggregate Cash Withdrawal

in a Financial Year

TDS Rates, if ITR’s of last

3 years filed

TDS Rates, if ITR’s of last

3 years not filed

Up to Rs. 20 Lacs

NIL

NIL

Rs. 20 Lacs – Rs. 1 crore

NIL

2%

Above Rs. 1 crore

2%

5%

Note:

If the person does not furnish his PAN while withdrawing money from the bank, then a higher TDS of 20% shall apply. 

Also Read: Restriction On Cash Transactions Under The Income Tax Act

Applicability of Section 194N

The newly amended Section 194N came into force on 1st July, 2020 and is applicable to the following:
Individual
Hindu Undivided Family
Company
Partnership or LLP
– Local Authority
– Association of Persons
– Body of Individuals
– Banks (Public or Private)
– Co-operative Banks
– Post Offices

Note:
If the assess has accounts in two banks, then he can withdraw Rs. 20 Lacs/1 crore from each bank.

Also Read: Know About The TDS Rates For FY 2022-23 Easily Explained

Non Applicability of Section 194N

This Section does not apply to:
– The Government;
– Any banking company or co-operative society engaged in carrying on the business of banking or a post office;
– Business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
– White label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007):
– Any other person notified by the government.

Also Read: Difference Between TDS And TCS Easily Explained

When will there be the deduction of TDS?

There will be a TDS deduction by the payer while making the cash payment over and above Rs. 20 lacs / Rs. 1 crore in a financial year to the payee. In cases, the payee withdraws a sum of money at regular intervals, the payer will have to deduct TDS from the amount once the total sum withdrawn exceeds Rs. 20 lacs / Rs. 1 crore in a financial year.


Also Read: Understand TDS Deduction: If Person Is Resident In India

Conclusion

– There shall be a deduction of TDS only if the amount exceeds Rs. 20 lacs / Rs. 1 crore.
For instance, if you have withdrawn Rs. 30 lacs, then TDS shall be deducted on Rs. 10 lacs only, and not on total of Rs. 30 lacs.

– The amount deducted as TDS shall be refunded or used against your tax liability at the time of filing of Income Tax Return. It can be done so only for the financial year in which the tax has been deducted at the source. The same was clarified by CBDT through Notification.

– The tax deducted under section 194N shall not be treated as income of the person withdrawing cash. The Finance (No. 2) Act, 2019 has amended section 198 to provide that sum deducted under section 194N shall not be deemed as income.

– The conditions of filing Income Tax Return are for all last 3 financial years. If you have filed the ITR for only 1 or 2 years, then the rate of  TDS shall be 2% for withdrawing cash above Rs. 20 lacs and below Rs. 1 crore and 5% for withdrawing cash above Rs. 1 crore.

Also Read: Section 192: TDS On Salary

– The objective of TDS on cash withdrawal is to discourage cash payments.

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