Income Tax News: Many people assume that they can withdraw any amount of cash from their bank account without facing any tax implications. However, it’s important to be aware that there are specific rules and limits governing cash withdrawals, especially when it comes to tax liability.
Cash Withdrawal Limits Under Section 194N
According to Section 194N of the Income Tax Act, if an individual withdraws more than Rs 20 lakh in a financial year from their bank account, they will be required to pay Tax Deducted at Source (TDS). This rule specifically applies to individuals who have not filed their Income Tax Return (ITR) for three consecutive years. For such individuals, TDS will be applicable on any cash withdrawal exceeding Rs 20 lakh from any bank, cooperative bank, or post office.
Relief for Regular ITR Filers
For those who regularly file their ITR, the rules are more lenient. These customers can withdraw up to Rs 1 crore in cash from their bank, post office, or cooperative bank account in a financial year without incurring any TDS. This provides a significant relief for individuals who maintain compliance with their tax filings.
TDS Rates for Cash Withdrawals
If an individual withdraws more than Rs 1 crore from their bank account, TDS will be deducted at a rate of 2 percent. For those who have not filed ITR for three consecutive years, the rules are stricter. They will be required to pay 2 percent TDS on cash withdrawals exceeding Rs 20 lakh and 5 percent TDS on withdrawals over Rs 1 crore.
ATM Transaction Charges
Apart from these tax-related rules, banks also impose charges for exceeding the prescribed limit on ATM withdrawals. As of January 1, 2022, the Reserve Bank of India (RBI) increased the service charge for cash withdrawals beyond the free transaction limit. Banks now charge Rs 21 for each transaction beyond the allowed limit, an increase from the previous charge of Rs 20. Typically, most banks offer five free transactions per month from their own ATMs and three free transactions from other banks’ ATMs. However, in metro cities, customers can only withdraw money free of charge three times from their own bank’s ATM.
Plan Your Withdrawals Wisely
To avoid unnecessary tax implications and charges, it is advisable to plan your cash withdrawals carefully. Understanding these rules can help you manage your finances more effectively and avoid unexpected fees or TDS deductions.
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