[ecis2016.org] This guide will help you understand the extent of TDS on cash withdrawals.
Under Section 194N, TDS (tax deducted at source) is applicable in case you withdraw large amounts from your bank account that exceed a specific threshold. This guide will help you understand the extent of TDS deducted on cash withdrawals.
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Section 194N
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This section of the Income Tax Act prescribes a deduction of 2% TDS on cash withdrawals of over Rs 1 crore, in case the person deducting the amount has filed an income tax return for any or all three previous assessment years. In the Union Budget 2020, it was announced that the threshold limit for TDS on cash withdrawals would be Rs 20 lakh for taxpayers, who had not filed their ITRs for the past three years. The new Section 194N came into effect on July 1, 2020.
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Threshold on TDS on cash withdrawal
Applicability of TDS on cash withdrawals will arise in the following cases:
- Withdrawal of over Rs 1 crore: If ITR has been filed for three years.
- Withdrawal of over Rs 20 lakh: If ITR has not been filed for three years.
Read our guide to understand the difference between financial year and assessment.
Rate of TDS on cash withdrawals
| Cash withdrawal of over Rs 1 crore by a person who has filed ITR for the past three years | 2% | Rs 2 lakh |
| Cash withdrawal of over Rs 20 lakh by a person who has NOT filed ITR for the past three years | 2% | Rs 40,000 |
| Cash withdrawal of over Rs 1 crore by a person who has NOT filed ITR for the past three years | 5% | Rs 5 lakh |
Who will deduct TDS under Section 194N?
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Banks and post offices are responsible for deducting TDS in case an account holder withdraws more than the prescribed threshold.
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Exceptions to the provisions of Section 194N
Provisions of Section 194N would not apply to payments made to:
- Government.
- Banking company or co-op society engaged in carrying out the business of bank or post office.
- Any business correspondent of a banking company or co-op society engaged in carrying out the business of the bank.
- Any white-label, automated teller machine operator of a banking company or a cooperative society engaged in banking.
- Any other persons as notified by the government in consultation with RBI.
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