Updated on November 26, 2024 12:49:21 PM
In India, Tax Deducted at Source (TDS) is a mechanism to collect tax at the source from where the income is generated. The government has introduced TDS provisions across various financial transactions, including cash withdrawals, to curb tax evasion and increase tax compliance. One such provision relates to TDS on cash withdrawals covered under Section 194N of Income tax act, 1961 above a certain threshold.
TDS on cash withdrawals is applicable when an individual or entity withdraws a large amount of cash from a bank account. The tax is deducted by the bank at the time of withdrawal and is remitted to the government on behalf of the taxpayer. This mechanism is designed to track large cash transactions and discourage the hoarding of unaccounted money. The provision for TDS on cash withdrawals was introduced under Section 194N of the Income Tax Act, 1961. The section specifies the TDS rates applicable to cash withdrawals, which vary based on the amount being withdrawn and the type of account holder.
This section is applicable to any person withdrawing cash from:
TDS is levied only on cash withdrawals exceeding certain limits. The applicable threshold limits u/s 194N are as follows:
These limits are cumulative across all cash withdrawals made by an individual or business during the financial year. The TDS is calculated on the total amount withdrawn that exceeds the specified threshold.
For example: A person has duly filed his IT returns and withdrawn cash ₹1.2 Crores from a private bank, TDS under section 194N will attract only the amount that exceeds the threshold that is ₹20 Lakhs. Therefore the bank is required to deduct and deposit TDS on ₹20 Lakhs only and not on the whole amount withdrawn that is ₹1.2 Crore.
The TDS rate on cash withdrawals under section 194N of income tax act 1961 are as follows:
Assessee | ITR for past 3 years | Limit | Rate of TDS |
---|---|---|---|
Any person (other than co-operative societies) | Filed | ₹1 Crore | 2% on amount exceeding 1 Crore |
For cooperative societies | Filed | ₹3 Crore | 2% on amount exceeding 3 Crore |
Any person | Not filed | ₹20 Lakhs | 2% on amount exceeding 20 Lakhs up to 1 Crore 5% on amount exceeding 1 Crore |
Note: TDS under this section is applicable as “per account basis” and not PAN india basis. For example, if an assessee has 2 separate bank accounts in 2 different banks, he can easily withdraw ₹2 Crore without TDS from two different bank accounts. 1 Crore from one bank and another 1 Crore from another bank. But, if he withdraws the whole amount of ₹2 Crore from one bank TDS will be applicable.
The primary purpose of imposing Section 194N, TDS on cash withdrawals is to promote the digitization of payments and reduce reliance on cash, which is harder to track. Cash transactions, especially large ones, are often associated with the risk of tax evasion, money laundering, and the circulation of black money. By introducing TDS on cash withdrawals, the government aims to:
Time of deduction:
TDS is deducted when cash is withdrawn from a bank account. It is the responsibility of the bank or financial institution to deduct the tax before handing over the cash.
In simple words “TDS is deducted at the time of payment”.
Who can deduct TDS u/s 194N? TDS under section 194N is required to be deducted by payer which are:
Time to deposit: TDS on Cash Withdrawals which is deducted u/s 194N and is required to be deposited to the central government. Time to deposit of TDS on Cash Withdrawals is given below:
When TDS is deducted | When to deposit TDS |
---|---|
April - February | On or before 7th of next month |
March | On or before 30th April |
For example, TDS on Cash Withdrawals is deducted on 15th December and needs to be deposited on or before 7th January. Tax on cash withdrawal is deducted on 21st March ; needs to be deposited on or before 30th April.
Following are exempt from TDS under section 194N if:
Failure to comply with TDS provisions u/s 194N, can result in penalties and interest. Individuals or businesses who withdraw large amounts of cash and do not comply with TDS provisions of section 194N could face scrutiny from the tax authorities. Some of the penalties are:-
Banks and financial institutions are required to submit a TDS return to the government, reporting the amount deducted on behalf of the account holder. The deducted tax is also reflected in the “Form 26AS” (Tax Credit Statement), which is available to taxpayers through their Income Tax Department login.
Taxpayers can use this information to verify if the TDS has been correctly deducted and adjust the same in their income tax returns. In case of any discrepancy or if TDS has not been deducted despite being applicable, taxpayers should contact the bank or financial institution for resolution.
At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:
In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.
TDS on cash withdrawals is a significant step towards enhancing the transparency and accountability of financial transactions in India. While it may seem like an added burden, the provision aims to discourage the use of unaccounted cash, promote digital transactions, and ensure that all taxpayers are paying their fair share of taxes.
Individuals and businesses should be aware of the thresholds and rates to avoid any surprises when making large cash withdrawals. Moreover, understanding how TDS works will help taxpayers ensure that the correct amount of tax is being deducted and that it is properly reflected in their tax filings.
Yes, if TDS is deducted on cash withdrawals, it can be claimed as a tax credit while filing your income tax return (ITR). If the TDS deducted exceeds your actual tax liability, you can apply for a refund of the excess amount.
TDS is calculated as a percentage of the excess amount withdrawn over the specified limit. For example, if a taxpayer withdraws ₹25 lakh in a year, and they are a non-filer of income tax returns, the first ₹20 lakh will not be subject to TDS, but the ₹5 lakh above the limit will attract 2% TDS.
TDS under Section 194N applies only to cash withdrawals from banks, post offices, or other financial institutions. It does not apply to other forms of transactions such as payments through checks, demand drafts, or electronic transfers.
Yes, foreign banks operating in India are also required to comply with Section 194N and deduct TDS on cash withdrawals exceeding the prescribed limits, similar to domestic banks.