Understanding Tax Credit Claims On TDS On Cash Withdrawals Of Over Rs 1 Crore

In the 2019 Budget, the Finance Ministry had introduced TDS (tax deducted at source) on cash withdrawals exceeding Rs one crore in a single financial year from a single bank account. One can claim a tax credit for the tax paid on the cash withdrawal transaction. By claiming credit, the taxpayer can reduce his/her total tax liability for the financial year.

The Central Board of Direct Taxes (CBDT) recently announced rules on claiming the tax credit on this TDS. The notification dated 27 September, stated that:

• Only the bank account holder can claim for credit on TDS deducted towards cash withdrawal from his/her account.
• It can only be claimed for the financial year that TDS was deducted for.
• The credit for TDS falls under Section 194N.

Important dates

The rules became effective on 1 September 2019.

Cash withdrawals made before 1 September 2019 are not subject to this TDS provisions. However, it was clarified by the CBDT that if an individual has already made cash withdrawals of Rs 1 crore or more between 1 April to 31 August 2019, he/she will be subject to TDS provisions on future cash-withdrawals that will be made within the financial year 2019-20.

TDS rules on cash withdrawals beyond Rs 1 crore will be applicable to:

• Individual taxpayers
• Hindu Undivided Families (HUFs)
• Companies
• Partnership firms or LLPs
• Local authorities
• Association of Persons (AOPs) or Body of Individuals (BOIs)

How is this tax credit claim different from other provisions?

The tax department clarified that unlike the provisions of Rule 37BA that allow a person to pass the tax credit benefit on tax deducted at source to the next financial year or another taxpayer, the tax credit benefit on TDS on cash withdrawals cannot be passed on to another year or person.

Only the person whose bank account the amount was deducted from can claim it during the ITR filing for the particular year that such a deduction was made in.

The idea behind the introduced on TDS on cash withdrawals over Rs 1 crore was to discourage cash withdrawals. As for those instances where tax credit was allowed to be carry-forwarded to subsequent years, the tax was deducted on income and cash withdrawals are not income.

Rate at which tax will be deducted

Tax is deducted at the rate of 2 percent on cash withdrawals made over Rs 1 crore from a single banks account in a single financial year.

For example, a person has two bank accounts, he/she can make withdrawals of up to Rs 2 crore in cash for a financial year without TDS with a limit of Rs 1 crore per bank account.

Further, the TDS will be applicable on an amount in excess of Rs 1 crore. For example, if the bank account holder has withdrawn Rs 95 lakh during the last 6 months and makes a cash withdrawal of Rs 6 lakh in October 2019, TDS will be deducted on Rs 1 lakh (as it exceeds the total limit of Rs 1 crore) and the TDS deducted will be Rs 2,000 (Rs 2 lakh x 2%).

The tax will be deducted by your bank, co-operative bank or post office on your behalf and paid to the Central Government.
You can find the details of your TDS made by the bank on Form 26AS, which is available on the income tax department's e-filing website after you login into the account.

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