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Ahead of the Union Budget, the banking sector, through the Indian Banks’ Association (IBA), has made recommendations to the Union finance ministry on direct tax, including removing Section 194N of the Income Tax Act.
According to Section 194N, tax deduction at source (TDS) has to be done if a sum or sums withdrawn in cash by a person in a fiscal year exceed Rs 20 lakh if no income-tax return (ITR) has been filed for the three previous assessment years, and Rs 1 crore if ITRs have been filed in all the three previous assessment years.
Tax is deducted at 2 per cent on cash withdrawals in excess of Rs 1 crore if the person withdrawing the cash has filed ITRs and for people who have not filed ITRs, it is 2 per cent on cash withdrawals of more than Rs 20 lakh and 5 per cent on those exceeding Rs 1 crore.
“Section 194N has cast a liability on banks to deduct TDS in case of withdrawal of cash from accounts above a specified limit. Banks are facing practical difficulty in implementing the same and collecting TDS amount from the customer’s account,” the IBA said in its pre-Budget recommendations.
According to the Reserve Bank of India’s (RBI’s) directives, the IBA has said in its recommendations, banks are required to allow customers to withdraw what they want without TDS adjustment.
Tax is to be debited from the account of the customer and cannot be adjusted against the cash withdrawn.
However, it has been observed that customers are not maintaining a sufficient balance in their accounts and banks are required to deposit the tax from their own funds. This results in additional losses for banks, the IBA said.
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