To reduce the cash transactions and increase tax compliance, the income tax department implements new TDS rules from July 2020
Until now, only 2% of TDS is applicable on cash withdrawals exceeding Rs.1 Crore in a year. It increases further with these new changes. These new changes are in effect from July 1st, 2020
For a transaction with the overall amount increasing Rs.20 lakh in a financial year, the TDS rate is dependent on if the person paid all his income tax returns for the past 3 years or not
Below are the rules for those who paid income tax returns for the past 3 years:
The government introduces new section 194N in the Union Budget 2019 in the Income-tax act. This new rule says that TDS is applicable for cash withdrawals of over Rs.1 crore. Post-offices, banks, co-operative banks fall under this category
Consider this example, if a person withdraws an aggregate amount of Rs.99 lakh in a financial year. And, in his next withdrawal if he draws Rs.1,50,000, then the TDS is applicable only on the extra amount which is Rs.50,000
For persons who didn’t update their PAN details in their respective bank records, a total of 20% TDS will be deducted which is higher than regular. This is under section 206AA of the Income Tax Act
The bright side is if any person has updated his PAN details with the bank and filed ITR for the last 3 years, there will be no TDS deducted on the aggregate amount of less than Rs. 1 crore.
However, the bank might ask you to show the proofs of the previous 3 years ITRs’. As an alternative, the individual can also ask the bank to verify from the income tax department’s e-filing website. There will be a tool to determine the TDS rate under section 194N
Below are the rules for those who did not file ITR:
For any person who did not pay the income tax returns for the past 3 years adjacent to this one, the TDR will be high.
There will be no TDS for cash withdrawals of up to Rs.20 lakh
There will be a 2% TDS rate for cash withdrawals ranging between Rs. 20 lakh and Rs. 1 crore
There will be a 5% TDS for cash withdrawals exceeding Rs. 1 crore
Even though these new TDS rules are in effect from July 1st, 2020, the cash withdrawal limit for this financial year will be taken into consideration from April 1, 2020
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