New TDS rules: How much tax is deducted for making cash withdrawals from bank

New TDS rules: How much tax is deducted for making cash withdrawals from bank

NEW DELHI : To discourage cash transactions and increase tax compliance, the income tax department has changed TDS rules for making cash withdrawals from banks and post offices from this month. So far, you were supposed to pay a TDS (tax deducted at source) of 2% on cash withdrawals exceeding 1 crore in a year. With effect from 1 July 2020, the TDS net has been widened further.

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For high-value cash transactions totalling over 20 lakh in a given financial year, the TDS rate is directly dependent on whether you have filed your income tax returns (ITR) for the last three years or not.

TDS rules for those who have filed ITR for last 3 years:

In the Union Budget 2019, the government had introduced new Section 194N in the Income Tax Act under which TDS on cash withdrawals over and above 1 crore is imposed. Banks, co-operative banks and post offices fall under its purview.

“For example, if a person withdraws 99 lakh in the aggregate in the financial year and in the next withdrawal, an amount of 1,50,000 is withdrawn, the TDS liability is only on the excess amount of 50,000,” explains ClearTax in a note on the TDS rule.

However, for those whose PAN (Permanent Account Number) is not updated in the bank’s records, then a much higher TDS of 20% is deducted under Section 206AA of the Income Tax Act.

If you have submitted PAN and have also filed ITR for last three years, then no TDS is charged for aggregate cash withdrawals of less than 1 crore.

Your bank may ask you to submit ITR-V (acknowledgement of filing of ITR) of last three years as proof. Alternatively, you can also request the bank to verify TDS rate directly on the income tax department’s e-filing portal where a tool to determine TDS rate under Section 194N has been enabled.

If you have not filed ITR for three years immediately preceding this year, then the rate of TDS deduction increases.

For cash withdrawals upto 20 lakh: No TDS

For cash withdrawals of 20 lakh- 1 crore: TDS at the rate of 2%

For cash withdrawals exceeding 1 crore: TDS at the rate of 5%

Although the new TDS rule came into force from July 1, the cash withdrawal limit for this financial year will be considered from April 1, 2020.

Source:-livemint
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