Clarification on applicability of Tax Deduction at Source on cash withdrawals

Highlights:

The 2% TDS shall, however, be applicable from day one on all such cases where an individual has already exhausted the Rs 1 crore limits for 2019-20, as per a statement issued by CBDT.

With the intention to discourage cash transactions and move towards less-cash economy, the Finance (No. 2) Act, 2019 has introduced a new section 194N in the Income-tax Act, 1961 (the ‘Act’), towards providing levy of tax deduction at source (TDS) @ 2% on cash payments more than 1 crore rupees in aggregate made during the year, through a banking company or cooperative bank or post office, to any individual from one or more accounts maintained with it by the recipient. The above section would come into effect from 1st September 2019.

As the section provided that the individual would be responsible for paying any sum, or, as the case might be, aggregate of sums, in cash, more than 1 crore rupees during the previous year to deduct income tax @ 2% on cash payment in excess of rupees 1 crore, questions were received from the general public through social media on the applicability of this section on withdrawal of cash from 1st April 2019 to 31st August 2019.

The CBDT, having considered the worries of the individuals, hereby clarified that section 194N introduced in the Act is to come into effect from 1st September 2019. Therefore, any cash withdrawal prior to 1st September 2019 shall not be subjected to the TDS under section 194N of the Act. 
The statement also stated that however, as the threshold of Rs. 1 crore is relating to the previous year, calculation of the sum of cash withdrawal for triggering deduction under section 194N of the Act would be counted from 1st April 2019. Hence, if an individual has already withdrawn Rs. 1 crore or more in cash up to 31st August 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the 2% TDS would apply on all subsequent cash withdrawals.

Nirmala Sitharaman, the Finance minister had introduced the levy in her first budget that was presented on 5th July. She stated in her budget speech that in order to discourage a large amount of cash withdrawal from bank accounts, it is suggested to provide for tax deduction at source at the rate of 2% on cash withdrawal by an individual in excess of Rs 1 crore in a year from his bank account.

eStartIndia is a professional tech-based online legal service provider which offers online legal assistance to our clients with the intention to simplify the legal compliance procedures and assist in all kinds registration,  tax filing, GST filing, and any additional legal compliances and services related to the business in India.

Author:

eStartIndia Team