The Central Board of Direct Taxes (CBDT) has notified the rules regarding claiming of tax credit for tax deducted at source (TDS) by banks on withdrawal of cash from an account exceeding Rs 1 crore in a financial year.
Through a notification dated September 27, the CBDT has stated that only the bank account holder (i.e., the individual in whose name the bank account is held) will be able to get tax credit on the TDS
and only for the financial year in which it has been cut.
The notification issued by CBDT states: "In the Income-tax Rules, 1962, in rule 37BA, after sub-rule (3), the following sub-rule shall be inserted, namely:- Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made." Rule 37BA of the Income Tax Act deals with the rules and process of claiming TDS credit.
This would mean that an individual withdrawing Rs 1 crore or more from his/her bank account will be able to claim the credit of TDS on the transaction. Claiming credit for this TDS would allow them to set it off against their total tax liability for the relevant financial year.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com says, "The provisions of Rule 37BA allow a deductee to pass on the credit of tax deducted to next year or to another person. Such option shall not be available in the case of tax deducted under Section 194N. The CBDT has clarified that the credit for tax deducted at source under section 194N shall be available to the deductee only. Further, the credit shall be allowed in the year of deduction itself. Deductee shall not be allowed to carry forward the TDS credit to subsequent assessment years. This option has been withdrawn in case of Section 194N TDS as the amount of cash withdrawal on which tax is deducted cannot be classified as income and the sole purpose behind such provision is to discourage cash transactions and to get trails of such transactions. The details of such TDS deducted in the year will also reflect in the individual's Form 26AS."
The proposal of levying TDS at the rate of two per cent on cash withdrawal over Rs 1 crore was announced in the Budget of July 2019 by the Finance Minister. The new law came into effect from September 1, 2019.
As per the law, TDS at the rate of two per cent is deductible by banks if an individual withdraws cash equal to or over Rs 1 crore from his/her account in one financial year. The CBDT has further clarified that if the individual has already withdrawn Rs 1 crore or more in cash between April 1, 2019 and August 31, 2019, then he/she will be subject to TDS provisions on future cash withdrawals within FY2019-20. However, any cash withdrawals made prior to August 31, 2019 will not be subject to TDS provisions.
Through a notification dated September 27, the CBDT has stated that only the bank account holder (i.e., the individual in whose name the bank account is held) will be able to get tax credit on the TDS
and only for the financial year in which it has been cut.
The notification issued by CBDT states: "In the Income-tax Rules, 1962, in rule 37BA, after sub-rule (3), the following sub-rule shall be inserted, namely:- Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made." Rule 37BA of the Income Tax Act deals with the rules and process of claiming TDS credit.
This would mean that an individual withdrawing Rs 1 crore or more from his/her bank account will be able to claim the credit of TDS on the transaction. Claiming credit for this TDS would allow them to set it off against their total tax liability for the relevant financial year.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com says, "The provisions of Rule 37BA allow a deductee to pass on the credit of tax deducted to next year or to another person. Such option shall not be available in the case of tax deducted under Section 194N. The CBDT has clarified that the credit for tax deducted at source under section 194N shall be available to the deductee only. Further, the credit shall be allowed in the year of deduction itself. Deductee shall not be allowed to carry forward the TDS credit to subsequent assessment years. This option has been withdrawn in case of Section 194N TDS as the amount of cash withdrawal on which tax is deducted cannot be classified as income and the sole purpose behind such provision is to discourage cash transactions and to get trails of such transactions. The details of such TDS deducted in the year will also reflect in the individual's Form 26AS."
The proposal of levying TDS at the rate of two per cent on cash withdrawal over Rs 1 crore was announced in the Budget of July 2019 by the Finance Minister. The new law came into effect from September 1, 2019.
As per the law, TDS at the rate of two per cent is deductible by banks if an individual withdraws cash equal to or over Rs 1 crore from his/her account in one financial year. The CBDT has further clarified that if the individual has already withdrawn Rs 1 crore or more in cash between April 1, 2019 and August 31, 2019, then he/she will be subject to TDS provisions on future cash withdrawals within FY2019-20. However, any cash withdrawals made prior to August 31, 2019 will not be subject to TDS provisions.
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