Introduction to TDS on Cash Withdrawal
TDS (Tax Deducted at Source) is a system of collecting tax at the time of making payments. It is a method of ensuring that the government receives tax revenue in a timely and efficient manner. TDS is deducted at the time of payment and deposited with the government on behalf of the taxpayer.
One of the recent developments in the TDS system is the introduction of TDS on Cash Withdrawal. The government of India introduced this provision in the Finance Act, 2019.
Rate of TDS on Cash Withdrawal
As per this provision, TDS will be deducted in two different cases which are given below:-
- at the rate of 2% on cash withdrawals exceeding Rs. 20 Lakhs (if no ITR has been filed for all the three previous AYs); or
- 5% for withdrawals exceeding Rs. 1 Crore, if the person withdrawing the cash has not filed ITR for any of the preceding three Assessment Years.
Why TDS on Cash Withdrawal?
This provision has been introduced to curb the circulation of black money in the economy. Cash transactions are a preferred mode of payment for businesses and individuals engaged in illegal activities. By introducing TDS on cash withdrawals, the government hopes to discourage cash transactions and encourage digital transactions.
Applicability of TDS on Cash Withdrawal
The provision of TDS on cash withdrawals applies to all taxpayers, including individuals, HUFs (Hindu Undivided Families), firms, companies, and other entities. However, certain entities are exempt from this provision, such as the government, banking companies, post offices, and cooperative societies carrying on banking business.
Non-Applicability of TDS on Cash Withdrawal
It is important to note that the provision of TDS on cash withdrawals does not apply to non-residents or to cash withdrawals from non-resident accounts. Additionally, TDS is not applicable on withdrawals made for purposes such as repayment of loans or credit card dues, or for purchases of assets such as land or property.
When deduction of TDS on Cash Withdrawal happens?
The TDS on cash withdrawals is deducted by the bank or post office at the time of making the payment. The taxpayer can claim credit for the TDS deducted while filing their income tax return. The TDS deducted will be reflected in the Form 26AS, which is a consolidated statement of tax deducted, and can be downloaded from the income tax department’s website.
Who deducts TDS on Cash Withdrawal?
The authority for deduction of Tax Deduction at Source on Cash Withdrawal is given to the banks (private, public and co-operative) or post office. Thus, when there is a cash payment made to any person exceeding Rs. 20 Lakhs or Rs. 1 Crore as the case may be then, at that point of time TDS is deducted.
Cash Withdrawal exempted from TDS by following entities
TDS on cash withdrawal does not apply if made by the below-mentioned entities, namely:-
- Central or state government
- Private or public sector bank
- Any cooperative bank
- Post office
- Business correspondent of any bank
- White label ATM operator of any bank
- Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of purchase of agriculture produce
- Authorized dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents
- Any other person notified by the Government in consultation with RBI.
In conclusion, the provision of TDS on cash withdrawals is a significant step towards curbing the circulation of black money in the economy. It is a step towards promoting the use of digital transactions and reducing the dependence on cash. It is important for taxpayers to be aware of this provision and to comply with the necessary requirements to avoid penalties and fines. Hope you have gained a good amount of knowledge about the topic “TDS on Cash Withdrawal”. For any query, feel free to reach our experts. We at EAdvisors, help to serve you with the best of services.