TDS on Cash Withdrawal above 1 Crore- Income Tax

Tax

                      TDS – Tax Deduction at Source is one of the advance revenue to the central government. It’s related to the income tax department. After demonetization in India, the submission of income tax return and the amount of taxpayers has been increased.

As per the rule, the bank need to deduct tax for the interest paid on the Fixed Deposit (Term Deposit) or Savings banks deposit at 10%. The taxpayers can claim the TDS amount if he is not supposed to pay the tax. Or he needs to pay the balance tax amount only.

Section 194N of Income Tax Act 1961

The Finance Minister of India declared a new section in the Income Tax Act 1961 in the Union Budget 2019. Section 194N is for deducting the tax of 2 % at the source for any cash withdrawal above Rs. 1 Crore aggregate in a financial year. 

The objective of the Section 194N is to discourage the cash payments and to encourage the online payments and the transactions. The online bank transactions are more transparent than the cash transactions. 

Section 194N applicable to

It is applicable to the taxpayers who withdrew an amount exceeding Rs. 1 Crore in financial in total. This section applies to the taxpayers such as

• ·         An Individual
• ·         A HUF
• ·         A local authority
• ·         An association of person or Body of Individuals
• ·         A company
• ·         A partnership firm

The following taxpayers are excluded from the section 194 N

·         Banks

• ·         Co-Operative Banks
• ·         Post Office
• ·         Business correspondents of the banking company
• ·         White label ATM operators
• ·         Notified persons of the Government

More to read: EMI Moratorium,Deposit Guarantee, Finance

Clarification and example

If a taxpayer has more than 1 account in various banks, he can withdraw with a limit of Rs. 1 Crore from each account. For example, Federick have 3 accounts in 3 banks, he can withdraw 1 crore from each account, which means 3 crore without tax.

This section came into its power from 1^st September, 2019. The banks started issuing notice about deducting the TDS amount from 01/09/2019 till 31^st March, 2020 for accounts which withdrew exceeding Rs. 1 Crore.

Calculation of TDS is a follows.  Federick can withdraw Rs. 1 Crore without any tax and consider that he withdraw Rs.50000/- more from the account in the same financial year, the TDS will be for the amount exceeding 1 crore, that is for Rs.50000/-

TDS = 50000 * 2 % = Rs.1000/-

Who will deduct the tax?

The payer should deduct the amount from the concern account which the account holder withdrew the amount exceeding Rs.1 crore.

• ·         Banks
• ·         Co-Operative Banks
• ·         Post Office

The Banks started to deduct the TDS amount from the concerned account after the financial year 2019-2020. The Co-Operative Banks send the notice on the TDS of withdrawal to the Primary Agricultural Credit Societies. But they argue that they are classified as Co-Operative banks and they have the exemption. 

In return, Income Tax Officers doesn’t consider PACS as banks since it is not under the RBI and Banking Regulation Act, so the exemption cannot be considered. The case is now under the Honorable High Court and let’s waits for the final decision on this.