TDS on Rs 1-crore cash withdrawal aimed at cracking down on black money

The ministry said that the 2% tax, announced in last week's budget and to start in September, was prompted by information showing misuse

The finance ministry has said that the imposition of a two per cent tax deducted at source (TDS) on the withdrawal of over Rs 1 crore from a single bank account in one year is aimed at cracking down on black money and tax evaders. Bona fide persons need not fear, it said, as they will get TDS reimbursed at the time of their quarterly advance tax payment.
 
The ministry said that the two per cent tax, announced in last week’s budget and to start in September, was prompted by information showing misuse.
 
“We have seen that there are withdrawals amounting to a few lakh crores of rupees where people have withdrawn more than Rs 1 crore from one PAN card...The whole idea is that people should not withdraw more than Rs 1 crore from one bank account,” said Revenue Secretary A B Pandey.

 

He added that, in a large number of cases, the correct PAN was not given at the time of withdrawal. “If a genuine person withdraws cash beyond Rs 1 crore for genuine use, he will pay TDS and then claim credit while making his advance tax payment in the respective quarter. If it is not a genuine case and he quotes the wrong PAN, he will get taxed at 2 per cent but will not be able to claim credit for that. This will help in detection,” said Pandey.
 
Tax experts, though, said the scheme has loopholes. For one, a mala fide person will probably use multiple bank accounts and withdraw smaller amounts than Rs 1 crore staggered over time, effectively escaping scrutiny because the provision applies only to the withdrawal of Rs 1 crore in one go from one bank.

 
For another, although imposing TDS and giving credit may help the income tax department glean information, it is likely to be limited precisely because the withdrawals from several bank accounts will escape scrutiny. 
 
Rakesh Nangia, managing partner, Nangia Advisors LLP, believes that since the Rs 1 crore limit is applicable per-bank-per-recipient, it opens the door for dishonest persons to remain out of the purview of TDS by using different accounts and by keeping each withdrawal to below Rs 1 crore. 
 
“Further, since the taxpayers can claim credit of the taxes withheld by the banks, this will be a just cash flow issue and no real tax will flow to the government as the tax payer will claim a credit of this TDS,” said Nangia.

 
However, he conceded that, due to reporting requirements, the government will at least be able to capture the information and open the door for scrutiny ‘which might be a deterrent’. 
 
The two per cent tax provision exempts certain payments such as those made to the government, banks, cooperative societies, and white label ATM operators. The government will also be able later to exempt other recipients if it so chooses after consultations with the RBI.