When you are depositing or withdrawing a certain specified amount in cash, you need to consider the following scenarios where you may be liable for tax liability. Besides, an assessee is liable to pay tax and, or penalty for the different types of transactions under various sections of the Income Tax Act. The details of the quantum of tax and penalty are provided below.
Who deducts TDS on cash withdrawal u/s 194N of the IT Act?
TDS is deducted by banks (private, public, and co-operative) or post offices. According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds ₹ 20 lakh (if no ITR has been filed for all the three previous AYs), or. ₹ 1 crore (if ITRs have been filed for all or any one of three previous AYs).
The percentage of TDS has to be deducted if a sum or aggregate of the sum withdrawn in cash by a person in a particular FY exceeds the specified limit below:
TDS will be deducted at a rate of 2% on cash withdrawals over ₹ 1 crore if the person withdrawing the cash has filed an income tax return for any or all three previous AYs.
TDS will be deducted at the rate of 2% on cash withdrawals of more than ₹ 20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed an ITR for any of the preceding three Assessment Years.
| Cash withdrawal | TDS : Nil | A person who has not filed Income tax returns |
| Up to Rs.20 Lakhs | TDS: Nil | TDS: Nil |
| Rs. 20 Lakhs to Rs.1 crore | TDS: 2% | TDS: Nil |
| More than Rs.1 crore | TDS: 5% | TDS: 2% |
According to section 269ST of the Income Tax Act, if a person is receiving Rs. 2 lakh in cash during a particular year or in respect of a particular transaction then the person receiving such money will be penalised as per section 271DA where penalty is equivalent to the amount of cash receipt. However, this penalty does not apply to bank withdrawals. Nevertheless, the TDS deduction applies to bank withdrawals surpassing the abovementioned limits.
Note: In the case of Cash receipts, it is on account of withdrawals that are previously made by the assessee or on account of exempted income earned by the assessee, in that case, if the assessee is receiving notice from income tax then the assessee can present that cash deposited is on account of previous unutilised withdrawals or from exempted income.
Taxability in case where cash deposit is on account of cash loans:
As per sections 269SS and 269T of the Income Tax Act which deals with the acceptance and repayment of cash loans; the assessee is not allowed to accept or repay cash loans which are exceeding Rs 20,000 during a particular year. In case of violation, a penalty is levied as per sections 271D and 271E which is equivalent to the amount of cash loan accepted or repaid.
TDS on Cash Gift:
Cash gifts less than Rs. 50,000 in a financial year are exempted from tax. However, gifts received from non-relatives exceeding this limit are taxable.
TDS on Interest Income:
Banks have to deduct TDS when your interest income is more than Rs.40,000 in a year for individuals other than senior citizens (for senior citizens, the limit is Rs.50,000) under section 194A of the Income Tax Act. The bank aggregates the interest on deposits held in all its branches to calculate this limit. However, if your total income is below the taxable limit, you can submit self- declaring Form 15G and 15H (senior citizens) to the bank and request them not to deduct any TDS.
Section 40A (3) applies to any assessee that makes one or more payments exceeding Rs. 10,000 to a person in a single day via any mode except account payee cheque, bank draft, or electronic clearing system. In such a case, the expenses made are disallowed from being used to claim tax deductions. Section 40A (3) is designed to combat tax evasion and the proliferation of black money within India. It states that tax deductions will not be allowed for payments exceeding 10,000 made to a person in a single day if they are made in cash. However, Section 40A(3) provides that cash payments made to transporters for hiring, leasing, or operating goods vehicles up to Rs.35000/- can be paid. Furthermore, up to Rs. 50,000 in cash can be paid as terminal benefits to employees. Additionally, under section 40 A (3), an expenditure of more than Rs 20,000 in cash per day is not allowed for the payer. So, nobody should pay a salary in the form of cash.
As per section 43(1), actual cost means the actual cost of assets to the assessee and this amount is added to the block of assets when any new asset is acquired. Where any expenditure for the acquisition of an asset for which payment or aggregate of payments made to a person in a single day exceeds Rs. 10,000 in cash, then such part of payments shall be ignored. For example, you have purchased a vehicle for Rs. 2,00,000 for which you paid Rs. 20,000 in advance in cash and later on paid the remaining amount via NEFT. In this case, you can claim depreciation for Rs. 1, 80,000 and not for Rs. 2,00,000 as 20,000 was paid in cash in a single day for the car.
Penalty on failure to establish the source of income:
If a person receives notice from the income tax department under section 68 of the Income Tax Act that person has failed to establish the source of income then such income is taxed at the rate of 60% along with a 25% surcharge and 4% cess.
Tax payable under the presumptive scheme:
As per the presumptive scheme of taxation under section 44AD/44ADA, certain small business taxpayers are not required to maintain books of account and up to the turnover declared by the assessee in the return of income, the assessee cannot be punished for huge cash deposits. However, the department has the right to question the deposits that have no connections with the business. In such cases, if a person proves the genuineness of the transaction then only the profit component of such transaction may be taxable. Here, the total amount deposited by the assessee beyond the self-declared amount of business is treated as profit.
Do you know when your bank reports the specified transaction (SFT) to the income tax report?
Sometimes, the deposits/withdrawals may not be subject to immediate taxation, but financial institutions are obliged to report transactions that exceed these limits to the Income Tax Department as specified financial transactions (SFT). According to the Income Tax Act, some of the transactions are treated as specified financial transactions i.e. if, during a particular financial year, any person is depositing cash aggregating Rs 10 lakh or more in a savings account then the bank will be required to report such transaction. The limit of Rs. 50 lakh is applicable for current account holders.
Statement of Financial Transactions [under Sec 285BA of IT act (Rule 114E)]:
Details of SFT are available in your income tax portal. Once you log in to the income tax portal, go to AIS in the dashboard. You will find SFT Information, for the following types of transactions.
1. Cash Deposits in Banks: Cash deposits aggregating Rs 10 lakh or more in a financial year in one or more accounts (other than Current Account / Time Deposit) of a person.
2. Term Deposits in Banks: One or more-time Deposits (other than a Time Deposit made through renewal of another time deposit) of a person aggregating to Rs 10 lakh or more in a financial year of a person
3. Deposits in Current Accounts: Cash deposits or withdrawals aggregating to Rs 50 lakh or more in a financial year in one or more Current Accounts of a person
4. Purchase of Bank Drafts: Payment made in cash for the purchase of bank drafts/Pay orders/Bankers Cheque/ Remittance of NEFT/RTGS for an amount aggregating to Rs10 lakh or more in an FY.
5. Cash Purchase of Prepaid Instruments: Payments made in cash aggregating to Rs. 10 lakh or more during the financial year for the purchase of pre-paid instruments issued by RBI/RBI bonds etc.
6. Credit Card Payments: Credit Card bill payments of more than Rs 1 Lakh p.a in cash mode (or) Rs more than Rs 10 Lakh through Cheques / NEFT transfers etc.
7. Purchase of Foreign Exchange: Purchase of foreign exchange, which includes travellers’ cheques and forex cards, debit or credit cards, aggregating to Rs 10 lakh is reported to the tax department.
8. Interest income on Deposits in an FY: including Savings Bank Deposits and Term Deposits, irrespective of amount.
9. Acquiring Debentures/Bonds/Shares/Shares buyback- -Purchase exceeding Rs10 lakh or more in a FY.
10. Acquiring units of MFs-Purchase exceeding Rs10 lakh or more in an FY.
11. The sale and purchase of immovable property is valued per stamp valuation at Rs30 lakh or more.
12. Cash receipt exceeding Rs 2 lakh- Persons liable for audit must report Cash receipt exceeding Rs 2 lakh by a person for sale or service.
The statement has to be filed in F61 A electronically before 31st May of the succeeding FY.
To whom is section 194N not applicable?
TDS on cash withdrawal u/s 194N will not apply to withdrawals made by the following persons:
Central or state government
Private or public sector bank
Any cooperative bank
Post office
Business correspondent of any bank
White-label ATM operator of any bank
The central government specified commission agents or traders operating under the Agriculture Produce Market Committee (APMC) for making payments to the farmers on account of the purchase of agricultural produce
Authorized dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents
Any other person notified by the Government in consultation with RBI.
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[Nearly, 104 amendments are made either by amending/omitting existing sections or by insertion of new sections. In this article, the amendments, which are most relevant to salaried persons, are covered below.]
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