Is it possible to claim refund of TDS on cash withdrawal under new section 194N?

With effect from July 2020, Banks would be deducting TDS on cash withdrawals in excess of Rs 1 crore by any person. The limit would be lower in case of persons who have not filed returns in the past three years, whereby tax deduction would start at Rs 20 lakhs.

As per the Tax law, a claim for TDS credit can be made only in the year in which corresponding “income” is offered to tax. Since cash withdrawal cannot be said to be in the nature of income, it led to an uncertainty as to how and if the credit of TDS on cash withdrawal can be claimed.

Recently, the Income Tax Department had notified that the credit for TDS shall be given only to the person from whose account tax has been deducted. The Notification can, in other words, be interpreted to mean that credit of TDS would be available on tax deducted from cash withdrawals.

Hence, filing of IT returns would become a necessity to both claim a refund of the TDS on cash withdrawals as well as to ensure no TDS deduction in the future on cash withdrawal up to Rs 1 crore. This becomes more relevant in case of NRIs who have a practice of withdrawing cash in excess of Rs 20 lakhs in a financial year.

Disclaimer: The views / the analysis contained therein do not constitute a legal opinion and is not intended to be an advice. Readers of this document are advised to seek their own professional advice before taking any course of action or decision, based on this document.

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