Haven’t filed ITR? Here’s how your cash withdrawals will be taxed

• Follow

With a view to discourage cash transactions and encourage ITR filing, Finance Minister Nirmala Sitharaman proposed to introduce Section 194N in her maiden Budget speech in 2019, which came into effect from July 2020.

The new rule reduced the threshold limit for tax deducted at source (TDS) to Rs 20 lakh for taxpayers who haven’t filed income tax return (ITR) since last three years.

Under Section 194N of the Income Tax Act 1961, if you are non-ITR filer, and your overall cash withdrawal exceeds Rs 20 lakh, but is less than Rs 1 crore in a given financial year, 2% TDS will be deducted on amount exceeding Rs 20 lakh. However, if the amount exceeds Rs 1 crore, 5% TDS will be levied on amount in excess of Rs 1 crore. For ITR filers, if the overall cash withdrawal exceeds Rs 1 crore in a fiscal year, 2% TDS is levied.

This rule is applicable on withdrawals from public sector banks, private banks, co-operative banks and post office among other financial institutions.

To put it in perspective, if an individual withdraws Rs 1 crore from his savings bank account or post office savings account in a given fiscal year, TDS will not be deducted if he is an ITR filer since the amount doesn’t exceed Rs 1 crore. However, if the person is a non-ITR filer, 2% TDS will be deducted on Rs 80 lakh – i.e. amount exceeding Rs 20 lakh.