NEW DELHI: In order to mitigate the challenges faced by banks in complying with the section 194N, which provides for tax deduction at source (TDS) at the rate of 2% on cash withdrawal beyond specified limit, finance minister Nirmala Sitharaman may announce amendment in this section in the upcoming budget 2023-24, according to sources in the know.
This provision dealing with TDS on cash withdrawals was made applicable from September 1, 2019. A banking company, post office and a cooperative society are required to deduct TDS if a person in the previous year withdraws cash over Rs 20 lakh. If a taxpayer withdraws cash to the tune of Rs 1 crore or above, then in that case, the TDS rate is 2%, if he or she has filed income tax return (ITR) in any of three preceding assessment years. In case, the withdrawal amount is up to Rs 1 crore, then no TDS will be applicable.
However, if the taxpayer hasn’t filed ITRs for all of the preceding three assessment years, then the TDS will be applicable for withdrawals of Rs 20 lakh and above. In this case, the TDS rate will be 2% for withdrawal of Rs 20 lakh to Rs 1 crore and the rate will be 5% if the withdrawal amount exceeds Rs 1 crore. “Banks are facing practical difficulty in complying with 194N for TDS. As per RBI norms, banks are required to allow withdrawal of full amount to customers without adjustment of TDS. TDS is required to be debited to the account of the customer and can’t be adjusted from cash withdrawn. It has been observed the customers have not been maintaining sufficient balance in their accounts, which results in additional loss to the banks,” a top official said.
The constitutional validity of section 194N has been challenged by various petitioners before the High Courts. Some of the rulings of the High Courts, wherein interim stay on the applicability of TDS under section 194N has been granted. This is resulting in several operational challenges for the banks to comply with tax provisions/high court order, said the official.
Withdrawal of cash over Rs 20L attracts TDS
A banking company, post office, cooperative society required to deduct TDS if a person in the previous year withdraws cash over Rs 20 lakh. If a taxpayer withdraws Rs 1 crore or above, in that case, the TDS rate is 2%, if he or she has filed ITR in any of three preceding assessment years