TDS on Cash Withdrawls

To File or Not to File Income Tax Returns? A change likely to be seen due to TDS on Cash Withdrawls

Trying to escape from filing ITR? Or Not filing ITR timely?

Ponder again over your plan to make any such attempt!!

The insertion of Proviso in the recently introduced Section 194N of the Income Tax Act, 1961 is another nail in the coffin of all such offenders.

The said provision requires banks, co-operative societies engaged in banking business and even post offices for deduction of a sum of 2% / 5% as Income Tax on the specified amounts withdrawn by “any tax payer” who has not filed income tax returns for the previous 3 assessment years within the time limit prescribed under Section 139(1) of the Income Tax Act, 1961.

Note: It should be noted, to avail the relaxation of non-deduction of TDS up to Rs.1 Crore, the assessee/tax payer is required to file return on time. No such relaxation to be provided for returns filed after due date i.e. belated returns.

The section will apply to withdrawals made by any taxpayer including:

· An Individual

· A Hindu Undivided Family (HUF)

· A Company

· A partnership firm or an LLP

· A local authority

· An Association of Person (AOPs) or Body of Individuals (BOIs)

The limits specified in the said Proviso are as follows: –

Where the cash withdrawn from such institutions by an assessee does not exceed 20 lakhs, no TDS;
Where the cash withdrawn from such institutions exceeds 20 lakhs but does not exceed 1 crore, TDS shall be deducted at the rate of 2% on the sum exceeding 20 lakhs;
Where the cash withdrawn from such institutions exceeds 1 crore, TDS shall be deducted at the rate of 5% on the sum exceeding 1 crore;

Attention shall be paid to the fact that the said Proviso has been inserted only w.e.f. 01.07.2020. The original section required TDS to be deducted at a standard rate of 2% on withdrawals exceeding 1 Crore. Hence, the specific intention of this provision is to punish/ curb the non-filers.

Other Important Parameters

S. No.	Issue	Remarks
1.	Whether limit prescribed are bank wise or account wise ?	The limits prescribed are applicable bank wise and not branch wise/account wise (an assessee can have a number of accounts with the same bank).
2.	Whether TDS shall be deduced on entire amount withdrawn or on amounts exceeding the prescribed limits?	The strict reading of the provision signifies that the TDS shall be deducted only on the amounts in excess of the prescribed limits (20 lakhs / 1 crore).
3.	Whether cash withdrawal shall qualify to be ‘Income’	Section 198 of Income Tax Act,1961 has been categorically amended to clarify that the cash so withdrawn shall not be considered to be an income of the concerned ‘assessee’.
4.	Whether deduction shall be available for the TDS deducted?	Tax Credit can be availed of the tax deducted by the person from whose account tax has been deducted by virtue of the recently introduced Sub-Rule 3A of Rule 37BA of the Income Tax Rules, 1962.
5.	ITRs of which assessment years shall be counted for the purposes of ITR of AY 2021-22?	For the AY 2021-22, the due date for submission of ITR has been extended till 30^th November 2020. Accordingly, for the cash withdrawals made in AY 21-22, ITRs for the AY 19-20, AY 18-19 and AY 17-18 shall be considered.