Cash withdrawals in India attract TDS

The Finance Act 2019 introduced a new Section 194N in the Income Tax Act whereby cash withdrawals from Banks and Post Offices by any person in excess of Rs 1 crore in a year was liable to deduction of tax at source (TDS) @ 2%.

The Section was further amended by Finance Act 2020 to provide that in case of persons who have not filed income Tax Returns in all the 3 years preceding the year in which amount is withdrawn by him, TDS shall be deducted:

• @ 2% where amount withdrawn exceeds INR 20 lakhs but less than INR 1 crore;

• @ 5% where amount withdrawn exceeds INR 1 crore.

Hence, TDS will be attracted from INR 20 lakhs in case of persons who have not filed Income Tax Returns in previous years and from INR 1 crore for others. These provisions have come into force with effect from 01 July 2020 and is applicable to every person including non-residents. Even withdrawals from ATM would be covered under the ambit of “cash withdrawal”. Since this limitation does not include bank transfers, it would be a better practice to manage transactions in India through digital mode.