With effect from 1 July 2020, new tax deducted at source (TDS) rules are applicable on cash withdrawals. Under the rule, TDS at the rate of 2 percent is charged on cash payments of more than Rs 1 crore in a financial year by a banking company or co-operative bank or post office to any person from an account maintained by the recipient.
The rule was introduced by the finance ministry to discourage cash withdrawals made by individuals/businesses and opt for digital payments instead. However, for the first three months of the current financial year, cash withdrawals from ATM were not charged with a fee, irrespective of which bank’s ATM a customer uses, as part of the COVID-19 relief package.
To make it easier to implement the change in TDS rule, the income tax department has introduced a functionality on its official website or banks and other financial institutions to calculate TDS rate under Section 194N on their customers. The tool is only meant for official use of banks, co-operative societies and post offices. It currently appears in the ‘Quick Links” as ‘Verification of applicability u/s 194N.’
To verify the applicability of TDS rate, users have to enter the PAN and mobile number in the tool to use it on behalf of a bank, co-operative society or post-office.
Section 194N was introduced in the Income Tax Act to discourage cash withdrawals and push a digital economy.
The rule has been amended further to link TDS with the filing of income tax return (ITR). If you have not filed your ITR for the last three years, banks will charge you TDS of 2 percent on cash withdrawal in excess of Rs 20 lakhs to Rs 1 crore. The rate is up to 5 percent if the amount is above Rs 1 crore.
For those who have filed ITR for the last three years, there is no TDS for cash withdrawals of upto Rs 1 crore and 2 percent for above Rs 1 crore.
For investment related articles, business news and mutual fund advise
You have already subscribed