TDS on cash withdrawal – Some Unanswered Questions
In the Union Budget 2019, the FM mentioned some measures for promoting less cash economy. One of the important provisions among them is the withholding tax on cash withdrawals. In order to encourage cashless transactions; FM, proposed the imposition of Tax Deducted at Source (TDS) at 2% on the withdrawal of cash from bank accounts in excess of Rs. 1 crore.
A new section 194N has been inserted in the Act. According to this :
Every person, who is,––
(i) a banking company to whom the Banking Regulation Act, 1949 applies;
(ii) a co-operative society engaged in the banking business; or
(iii) a post office,
who is responsible for paying any sum or aggregate of sums, in cash, in excess of Rs. 1 crore during the financial year, to any person from an account maintained by him /her with it shall,
at the time of payment of such sum, deduct an amount equal to 2% of a sum exceeding Rs 1 crores, as income-tax.
It is to be noted that this is not a tax on withdrawal of cash. It is a tax deduction at source and the amount so deducted shall be eligible for credit against tax liability in respect of income of the year.
Single transaction or aggregate amount?
As the section is worded, any time the “total” withdrawals from the account with the particular bank exceeds Rs 1 crores, the tax will be deducted. Hence, the levy is on the aggregate amount withdrawn during the FY and exceeding Rs 1 crores and not limited to a single withdrawal.
Considering this banks are required to mandatorily maintain a tab on the aggregate withdrawals from an account during the year.
How to compute the TDS?
The TDS will be imposed on the amount in excess of Rs 1 crores.
For eg: If a person has already withdrawn Rs 98 lacs cash from his account with a bank. He withdraws another Rs 5 Lacs today. In this case, while making the payment of Rs 5 lacs the tax will be deducted on the amount in excess of Rs 1 crore.
Hence, in this case, 2% of Rs 3 lacs (Rs 98 lacs + Rs 5 lacs – Rs 1 cr) i.e Rs 6,000 will be deducted by the bank and balance of Rs. 4,94,000/- will be paid.
Who is excluded from this TDS?
Section 194 N has specifically mentioned the list of payments that are exempted from the levy of this TDS. Accordingly, the payments done to the following are excluded:
(i) the Government;
(ii) any banking company, co-operative bank or a post office;
(iii) any business correspondent of a banking company or co-operative bank, in accordance with the relevant guidelines issued by RBI
(iv) any white label automated teller machine operator in accordance with the authorization issued by the Reserve Bank of India
(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.’.
No such notification in view of point (v) above has been issued yet. However, considering the fact that many businesses in India still use cash withdrawals to make payments, they are likely to be excluded from this levy.
Some unanswered questions
As this provision is newly inserted in the Budget 2019, some of the questions are still unanswered. We attempt to draw a conclusion based on the wordings while awaiting the clarifications from the government
Will the TDS be attracted if I withdraw Rs 60 lacs each from 2 different accounts in a bank?
From the wordings of the section, it appears that the withdrawal in excess of Rs 1 crore from one account attracts tax. Hence, withdrawal from 2 different accounts or 2 different banks will not come under the purview of this provision. It is also possible that one person will have two accounts with the same bank say, a current account and savings account. However, in such a case, considering the wordings of the provision and in absence of further guidelines, TDS will be applicable if withdrawal “per account” exceeds Rs 1 crores. This will defy the intent of the provision and hence the tax can be deducted based on PAN, Aadhar etc updated with the bank. However, it is still unclear as on date.
What if I have already withdrawn the amount in excess of Rs 1 crore in May 2019 i.e. before the Budget announcement?
The levy of TDS while the payment is mandatory for the banks for the withdrawals in excess of Rs 1 crores during the year April 19 – March 20. If you have already withdrawn amounts in excess of Rs 1 cr the levy has not happened so far. It is still unclear if the banks will certainly withhold the tax in your next withdrawal. However, it is still unclear if the bank will adjust the payment even for the withdrawals done in excess of Rs 1 cr before the budget announcement.
The Ministry of Finance recently clarified that in case cash in excess of Rs.1 Crore has been withdrawn before 1st September 2019 the same will not be liable for deduction of tax at source.
Will “bearer cheques” or “drafts” be considered as cash withdrawals?
Many businesses issue bearer cheques to the workers instead of cash. The question remains whether such bearer cheques will be considered as cash withdrawals. Prima facie, any bearer cheque is practically a cash withdrawal and keeping the intent of “Less- Cash” economy in mind, we feel that bearer cheques should be considered as withdrawals. However, in such case the worker who received the bearer cheque will receive the short payment after deduction of TDS and might not be just on him. Similarly, the demand drafts should not be considered in withdrawals. The clarity on this is yet awaited.
How can “tax deducted at source (TDS) be levied on an amount which is not “income”? (Click here to read more about this)
The article is written by CA Janhavi Phadnis. If you have any queries concerning the above article. Please write to us either in the comments section below or email us on firstname.lastname@example.org.