New TDS rules for PPF, other small savings schemes: Check details here

Rules apply only for cash withdrawals of non-ITR filers

The Department of Posts (DoP) — trading as India Post — has issued new rules for tax deducted at source (TDS) if the aggregate withdrawal from all post office schemes is more than Rs 20 lakh.

Kapil Rana, founder and chairman, HostBooks, says, “DoP has brought the withdrawal from all post office schemes under the preview of Section 194N and will deduct tax in accordance with the provisions mentioned in this Section.”

Some of these schemes are Public Provident Fund, National Pension System, and Sukanya Samriddhi Yojana.

Possible implications

According to the new norms, if an investor has not filed his income-tax returns (ITR) for three assessment years, TDS will be deducted from the withdrawal amount. This new rule is applicable with effect from July 1, 2020.

Gopal Bohra, partner, N.A. Shah Associates, says, “In case the assesse has furnished return for all the three assessment years immediately preceding the previous year in which cash was withdrawn, tax is required to be deducted at the rate of 2 per cent on cash withdrawn in excess of Rs 1 crore.”

If an assessee has not filed return for all the three assessment years immediately preceding the previous year in which cash was withdrawn, and the due date for filing the return under Section 139(1) has expired, tax is required to be deducted at the following rates:

(a) 2 per cent cash withdrawn in excess of Rs 20 lakh if the aggregate of the amount withdrawn exceeds Rs 20 lakh during the previous year, but does not exceed Rs 1 crore;

(b) 2 per cent on cash withdrawn in excess of Rs 20 lakh, but up to Rs 1 crore, at the rate of 5 per cent from the sum withdrawn in excess of Rs 1 crore.

In the Union Budget 2021-22, Finance Minister Nirmala Sitharaman had said senior citizens above the age of 75, who only have pension and interest as source of income, will be exempted from filing ITR.

Will this rule apply to them since they are not required to file returns? 

Bohra says, “Senior citizens, exempted from filing returns, will be required to file tax returns if they have an account in the post office. That exemption is permitted only if such a senior citizen has pension and interest in one bank account.”  

Course of action

Pay up seems to be the only way out.

Rana says, “Because withdrawal from various post office schemes has come under the preview of Section 194N, anyone who needs to withdraw from such schemes must consider the TDS provisions of the said Section. He should comply with I-T provisions to avoid TDS or pay TDS at a reduced TDS rate.”

Section 194N of the I-T Act, 1961, provides that every banking company (including any bank or banking institution), co-operative bank or post-office, responsible for payment of cash to a person, from one or more accounts maintained by him, shall be required to deduct tax under this provision.

Naveen Wadhwa, deputy general manager, Taxmann, says, “This provision provides for deduction of tax only if the assessee has received cash from any banking company (including any bank or banking institution), co-operative bank or a post-office. Further, the threshold limit is lower and the rate of deduction is high in the case of a non-filer of return of income. Thus, it is advisable to file return of income and move towards a cashless economy.”