In India, Section 194N of the Income Tax Act, 1961 has been amended as per the Union Budget Proposal for 2020. As per this amendment, if the amount withdrawn from banks (including Co-operative Banks and Post Office) in a financial year (from a current / savings account) exceeds ₹ 20 lakhs and if you have not submitted income tax returns for the last three years, then 2% of the exceeding withdrawal amount after twenty lakhs will be deducted from the source (TDS) itself.
If the amount withdrawn is more than Rs. 1 crore, the tax levied will be 5%. Even if the income tax return for the last three years is submitted but the withdrawal amount still exceeds Rs. 1 crore, 2% tax will be levied in such cases as well. This provision also applies to Overseas Indian Accounts (NREs). The above applies to cash withdrawals from your account. This does not apply to transfers from one account to another by way of cheques or online transfers.
When this tax was first introduced in the 2019 Budget, the tax was 2% on withdrawals over Rs. 1 crore. The new amendment came into effect on July 1, 2020. The amendment seeks to reduce cash flows and increase digital payments.
As per the amendment made in Section 198 of the Finance Act 2019, the amount taxable under Section 194N will not be treated as income. Refund can be obtained by showing the tax levied in this way on the Income Tax Return.
Customers who are likely to withdraw more than Rs. 20 lakhs in a financial year can avoid tax by submitting a copy of their IT Return to the banks on time.
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