Income Tax Will Be Charged On Cash Withdrawal! New Tool Launched For TDS

The Income Tax department has rolled out a new tool to calculate Tax Deducted at Source (TDS) rate under Section 194N on its e-filing portal. 

This development comes after new rules under Section 194N relating to TDS on cash withdrawals were implemented from July 1. 

Read on to find out more about this tool…

What is Section 194N Introduced in the Income Tax Act?

To encourage a cashless economy, a new Section 194N was introduced in the Income Tax Act effective from July 1. 

Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year. A TDS rate of 2% will apply to the aggregate of sums of more than Rs 1 crore withdrawn from a bank or financial institution by any person from an account maintained by the recipient in a financial year.

Furthermore, this rule has been revised to link TDS with the filing of Income Tax Return (ITR).

If you have not filed your ITR for the last 3 years, your bank will charge you TDS of 2% on cash withdrawal ranging between Rs 20 lakhs to Rs 1 crore. If the amount is above Rs 1 crore a TDS rate of 5% is charged.

The good news is for those individuals who have been filing ITR for the past 3 years!

They won’t have to bear the TDS for cash withdrawals of upto Rs 1 crore. But above a withdrawal of Rs 1 crore, a TDS rate of 2% will be applicable.

Banks To Report TDS For Cash Withdrawals Exceeding Rs 1 Crore!

The TDS form has been made more comprehensive. It is now compulsory for the deductors to state reasons for non-deduction of tax. All banks and financial institutions have to report TDS for cash withdrawals above Rs 1 crore. 

The Central Board of Direct Taxes (CBDT) has revised the Income Tax Rules to include TDS on e-commerce operators, dividend distributed by mutual funds and business trusts, cash withdrawals, professional fees and interest.

Shailesh Kumar, Nangia & Co LLP Partner said that with this notification, the government has revised the format of forms 26Q and 27Q, where details of TDS amount deducted and deposited on various resident and non-resident payments are required to be filled.

Form 26Q is used for quarterly filing of TDS returns for non-salary payments to Indian residents by the government or corporations operating in India.

Form 27Q is used for quarterly filing of TDS returns electronically for non-salary payment to non- residents, which includes NRIs and foreigners. 

Kumar said “the new forms are more comprehensive and require payers to report not only those cases where TDS is deducted, but also cases where TDS is not deducted for any reason. Separate codes have been provided to cover different situations of deduction of TDS at lower rate/ non-deduction of TDS.”

The government deductors are exempt from mentioning PAN in the form. Although all other deductors have to  compulsorily mention PAN in the form. 

The amended forms and rules also require to integrate reporting for new sections of TDS added in the Income Tax Act, such as Section 194N for cash withdrawals, Section 197A permitting non-deduction of TDS in various situations, among others.

How to Operate the TDS Calculating Tool?

Currently, this TDS calculating tool is meant for the official use by banks, co-operative societies and post offices. 

This tool is available on the Income Tax Department’s e-filing portal.

The description on the portal reads, “A functionality to determine TDS rate u/s 194N has been enabled in e-Filing portal for Banks, co-operative society and post office,”

On the website, under the ‘Quick Links’ section, a new sub-section called ‘Verification of applicability u/s 194N’ has been added. After clicking on the link, it takes you to a window wherein you will have to enter your ‘PAN card’ number and the registered mobile number, upon which you will receive an OTP.

Your bank, co-operative society or post office can use the facility to calculate the TDS rate for you.

Otherwise, for verification purposes, you may be asked to sign a declaration letter along with a copy of acknowledgement of return of Income (ITR-V) of FY 2018-19, FY 2017-18 and FY 2016-17.

Click here to explore this new tool.