The Income Tax Department has amended Section 194N relating to TDS on cash withdrawals from Banking Company, Cooperative Bank or a Post Office to discourage cash transaction and to increase tax compliances. Section 194N was inserted by the Finance Minister in Union Budget 2019 to enforce deduction of TDS @2% on cash withdrawal exceeding 1 Crore from Banking Company, Cooperative Bank or a Post Office. In the absence of PAN, TDS@20% is deducted.

The Income Tax Department has amended Section 194N to include the following:

For those account holders who have not furnished Income Tax Returns for last three immediately preceding years, TDS will be deducted as follows:

-For cash withdrawal upto 20 Lakhs: No TDS

The new provision is applicable from 1st July, 2020. The limit for cash withdrawal will be taken from 1st April, 2020 for the current financial year 2020-21.

With the introduction of new proviso to Section 194N which has reduced the limit to 20 Lakhs from 1 Crore for deduction of TDS for cash withdrawal for those account holders who have not filed ITR for three financial years immediately preceding the financial year of cash withdrawal, there was lot of apprehensions that how the banking company, co-operative banks and post office will come to know that the account holders have filed ITRs or not for the last 3 financial years.

To enable them to check whether the account holder has filed Income Tax Returns for three financial years immediately preceding the financial year in which cash is withdrawn, a functionality to determine TDS rate u/s 194N has been enabled on the home page of e-Filing portal.

The process is very simple, the banks will need to put the PAN number of the account holder and valid mobile number to receive OTP, the message will pop up regarding the rate of TDS applicable and accordingly TDS will be deducted by them.