The Income Tax Department has facilitated a new functionality for banks and post offices through which they can ascertain the TDS applicability rates on cash withdrawals above Rs 20 lakh in case of a non-filer and above Rs 1 crore in case of a filer of the income tax return (ITR). So far, more than 53,000 verification requests have been executed successfully on this facility.
CBDT today said that this functionality available as “Verification of applicability u/s 194N” on http://www.incometaxindiaefiling.gov.in since 1st July 2020 is also made available to the banks through web-services so that the entire process can be automated and be linked to the banks’ internal core banking solution.
Explaining the details of this facility, CBDT said that now banks/post offices have to only enter the PAN of the person who is withdrawing cash for ascertaining the applicable rate of TDS. On entering PAN, a message will be instantly displayed on the departmental utility: “TDS is deductible at the rate of 2% if cash withdrawal exceeds Rs 1 crore” (if the person withdrawing cash is a filer of the income-tax return) and “TDS is deductible at the rate 2% if cash withdrawal exceeds Rs 20 lakh and at the rate of 5% if it exceeds Rs 1 Crore” (if the person withdrawing cash is a non-filer of ITR).
CBDT said that the data on cash withdrawal indicated that a huge amount of cash is being withdrawn by the persons who have never filed ITRs. To ensure filing of return by these persons and to keep track on cash withdrawals by the non-filers, and to curb black money, the Finance Act, 2020 w.e.f. 1st July, 2020 further amended Income-tax Act to lower threshold of cash withdrawal to Rs 20 lakh for the applicability of this TDS for the non-filers and also mandated TDS at the higher rate of 5% on cash withdrawal exceeding Rs 1 crore by the non-filers.
Commenting on the CBDT move, tax experts said that the scope of Section 194N was substantially enhanced by the Finance Act, 2020. Earlier, only single TDS rate and single threshold limit was prescribed for deducting tax on cash withdrawals. Now, a banking company, or a co-operative bank or a post office is required to deduct tax at two different rates considering two different threshold limits. This situation arises when a person withdrawing cash falls under the first proviso to Section 194N.
“The general provisions of section 194N requires deduction of tax at the rate of 2% if cash withdrawal exceeds Rs 1 crore. First proviso to Section 194N provides that if the person withdrawing cash has not filed return of income for three previous years, tax shall be deducted at the rate of 2% on cash withdrawal exceeding Rs 20 lakh and 5% on cash withdrawal exceeding Rs 1 crore,” said CA Naveen Wadhwa, DGM, Taxmann.
To ensure that the banks deduct tax at precise rate, it was apprehended that banks will ask the customers to submit the copy of ITR filed in the previous three years. This exercise would have been very cumbersome for the banks. Thus, “to simplify the process, the CBDT has introduced a functionality on the e-filing platform to enable the banking company or a co-operative bank or a post office to check whether person withdrawing cash is falling within the first proviso or not,” said Wadhwa.
An important thing which must be kept in mind that tax so deducted under section 194N shall not be treated as income of the person withdrawing cash. The Finance (No. 2) Act, 2019 has amended section 198 to provide that sum deducted under section 194N shall not be deemed as income. However, tax so deducted on cash withdrawals can be claimed as credit at the time of filing of ITR.