The Union Budget for FY 2019-20 was presented by the Finance Minister Nirmala Sitharaman in Parliament on Friday wherein a new section, Section 194N, was proposed to be introduced in the Income Tax Act. Under Section 194N, individuals and business entities who make cash withdrawals of Rs 1 crore or more from banks or post offices during a financial year will be charged a tax deducted at source (TDS) of 2%.
The amendment is expected to be effective from 1 September 2019. This is one of the various measures in the Budget the government has proposed to discourage large amount cash withdrawals and drive the country towards a cashless economy.
Suppose you make cash withdrawals of Rs 20 lakh on a monthly basis from a bank, you would hit the Rs 1 crore mark after the fifth month. Your withdrawals will attract a TDS of 2% i.e. Rs 2 lakh under Section 194N on the Rs 1 crore have withdrawn during the financial year. The tax will be deducted and deposited with the government by the concerned bank or post office.
However, cash withdrawals made by the Central Government, State government, post offices, co-operative banks, banks, and other individuals or entities notified by the government in cooperation with the RBI from banks or post offices will be exempt from the proposed section. Section 194N is one of the various measures the government has tabled in the Budget to discourage cash withdrawals and drive the country towards a cashless economy.