Cash withdrawals in India may now 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 had been amended by Finance Act 2020 to further provide that in case of persons who have not filed IT Returns in all the 3 years preceding the year in which amount is withdrawn by him, TDS shall be deducted:

• @ 2% where amount withdrawn exceeds Rs 20 lakhs but less than Rs 1 crore;

• @ 5% where amount withdrawn exceeds Rs 1 crore.

Hence, TDS will be attracted from Rs 20 lakhs in case of persons who have not filed IT returns in previous years and from Rs 1 crore for others. These provisions have now 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. 

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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