- Section 194N TDS Cash withdrawal
- INTRODUCTION
- Cash withdrawal TDS or Tax Deducted at Source on cash withdrawals is a provision introduced in the Finance Act of 2020 to discourage cash transactions and promote digital payments. The government aims to track high-value cash transactions and curb tax evasion with this provision. This article explains the TDS on Cash Withdrawals, how it works, and who is liable to pay it.
- What is Cash Withdrawal TDS?
- According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds :
- ·
₹ 20 lakh (if no ITR has been filed for all the
three previous AYs), or
- ·
₹ 1 crore (if ITRs have been filed for all or any
one of three previous AYs).
- Who deducts TDS on cash withdrawal u/s 194N of the Act?
- TDS is deducted by banks (private, public, and co-operative) or post offices. The tax is deducted when making any cash payment to any person in excess of ₹ 20 lakh or ₹ 1 crore (as the case may be) from his/her account maintained with such banks or post offices.
- How does Cash Withdrawal TDS work?
- When a person withdraws cash from their bank account, the bank deducts the Tax if the withdrawal amount exceeds Rs. 1 crore. For example, if a person withdraws Rs. 1.5 crore from their bank account, the bank deducts 2% TDS on the excess amount of Rs. 50 lakh. The Tax Deducted at Source amount is then deposited with the government on behalf of the person.
- Who is liable to pay Cash Withdrawal TDS?
- The liability to pay Tax deducted at Source on Cash Withdrawal on the bank where the person holds the account. The bank deducts the tax and deposits it with the government on behalf of the person. However, the person can claim a refund of the TDS amount if they have paid more tax than their actual liability.
- The implications of Cash Withdrawal TDS
- Tax deducted at Source on Cash withdrawal has several implications for taxpayers and the economy as a whole. Some of the key implications of Cash Withdrawal TDS are discussed below:
- 1.
Reduction in the use of cash: Cash withdrawal TDS is
aimed at reducing the use of cash in the economy and promoting digital
transactions. This is expected to reduce the incidence of black money and
improve tax compliance.
- 2.
Increased compliance burden: Tax Deducted at Source on
cash withdrawal imposes an additional compliance burden on taxpayers as they
need to ensure that the tax is deducted and deposited by the bank or post
office. Failure to comply with TDS provisions can attract penalties and
interest.
- 3.
Impact on cash-intensive businesses: Cash-intensive
businesses such as real estate and jewellery may be impacted by cash withdrawal
as they often deal in large amounts of cash. This could affect their cash flow
and profitability.
- 4.
Impact on banks and post offices: Tax deducted at
Source on Cash withdrawal places an additional responsibility on banks and post
offices to deduct the tax and remit it to the government. This could increase
their compliance costs and administrative burden.
- Exceptions to Cash Withdrawal TDS
- There are certain exceptions to the TDS on cash withdrawals. The following transactions are not liable for TDS:
- 1.
Withdrawals made by the government, banks, or
financial institutions.
- 2.
Withdrawals are made by certain categories of
taxpayers, such as agricultural income earners, non-residents, and certain
charitable institutions.
- 3.
Withdrawals are made for a specific purpose, such as
for the treatment of a serious illness, higher education, or marriage.
- Bottom line
- To summarize, the government has implemented Tax Deducted at Source (TDS) on Cash Withdrawal to encourage digital transactions and reduce the use of cash. If the cash withdrawal exceeds Rs. 1 crore in a financial year, the TDS rate of 2% applies, and it is the bank's responsibility to deduct the tax. If an individual has paid more tax than their actual liability, they can claim a refund. However, there are exceptions to TDS on Cash Withdrawal, such as withdrawals made by the government, specific categories of taxpayers, and certain purposes. It is crucial to understand these provisions to avoid any legal or financial penalties.
