Cash withdrawal of more than 1 Crore attracts TDS

Rajdeep Saini

31 Oct, 2020

The Central government to reduce cash transactions and move one step forward towards the cash-less economy brought out a new amendment by introducing Section 194N under the Income Tax Act, 1961. This section is implemented from 1^st September 2019 to provide for tax deductions on withdrawals of cash made by any individual from their own bank or the account of the post office.

If the sum of the total amount which is withdrawn, crosses the value of Rs 1 Crore in the previous financial year, then the rate of TDS of five percent will be levied on the amount of cash withdrawn in a matter where the person who has not filed an ITR return in the last three financial years.

What is Section 194N with respect to cash withdrawal?

Section 194N of the Income tax Act is relevant in case of withdrawals of cash of more than the amount of Rs 1 Crore during the previous year. This section will be applicable to all the amount of money or a sum total withdrawn from a specific payer in a financial year.

 Section 194N will apply to extraction made by any taxpayer including:

• An Individual;
• A Hindu Undivided Family (HUF);
• A Company;
• A partnership firm or an LLP;
• A local authority; and
• Body of Individuals (BOIs) or An Association of Persons (AOPs)

The following payers are enclosed under this section:

• Any bank (public or private sector)
• A co-operative bank
• A post office
• Payer’s tax will be deducted while making payment to any person in cash from a bank of a tax payer account on the sum in excess of Rs 1 Crore.

Who is required to deduct tax on cash withdrawal?

Under Section 194N under the Income tax act it is necessary for every banking company, post office or a co-operative bank to deduct tax on the withdrawal of cash made by any individual from account’s sustained with such bank or post office.

When the tax shall be required to be deducted on cash withdrawal?

For this to be applicable, the tax must be deducted only when the total amount of cash withdrawal throughout the period of the previous financial year by an individual from single or more of his post office account or bank, as the case may be, surpasses Rs. 1 Crore. Moreover, the tax must be necessary to be deducted only on the amount surpassing Rs. 1 crore.

What is the Rate of TDS on cash withdrawal?

The TDS must be subtracted at the rate of 2 per cent on the amount of cash withdrawal beyond Rs. 1 Crore.

What is the date of the applicability of Section 194N on cash withdrawals?

In accordance with Section 194N, it is applicable from the period of September 1, 2019. Therefore, every post office or bank shall be required to deduct TDS on the withdrawal of cash made after or on 1^st September 2019. Though, Section 194N of the income tax act provides that the tax shall be mandatory deducted only when the total amount of cash withdrawn by an individual during the previous year, from one or more of his bank or post office account, exceeds Rs. 1 Crore. However, for the rationale of calculation of the threshold limit of Rs. 1 crore, the sum amount of cash withdrawn during the previous financial year shall be considered.

To bring more clarity, the Central Board of Direct Taxes^[1] (CBDT)  has issued a Press Release, on 30^th August 2019 to provide that any cash withdrawal proceeding to September 1, 2019, will not be subjected to the Tax Deducted at Source under Section 194N. Nevertheless, since the verge of Rs. 1 crore is with respect to the previous financial year, estimation of amount related to withdrawal of cash for set-off deduction under section 194N must be calculated from 01 April 2019. However, if a person has previously withdrawn Rs. one crore or more in cash up to 31 August   2019 from single or more accounts maintained with cash or a banking company or a post office, then two percent TDS must apply on all succeeding cash extraction made on or after 01 September 2019.

When TDS must not be required to be deducted?

There will be no tax deduction for the following entities:

• Central or State Government
• Banks
• Co-op. Banks
• Post Office
• Banking correspondents
• White label ATM operators
• Other persons notified by the Government in consultation with the RBI.

Example of the cash withdrawal

 Mr. A has saving and current account with a bank. The details of cash withdrawn from both the accounts are as follows:

Conclusion

Read our article:How to Claim Income Tax Refund Online?