Income Tax Department: The funds in your bank account fall within the scope of regulations, making it crucial to understand the withdrawal limits to stay clear of taxation.
If you’re accustomed to freely withdrawing money from your bank account, it’s time to exercise caution. Carefully strategize your cash withdrawals to avoid unnecessary tax implications. It’s essential to be aware of the annual tax-free withdrawal limit, as the rule governing fees for exceeding this limit applies not only to ATM transactions but also to bank withdrawals.
What is the Withdrawal Limit for Cash?
There is a common misconception that individuals can freely withdraw any amount of cash from their bank accounts without consequences. However, as per Section 194N of the Income Tax Act, if a person withdraws an amount exceeding Rs 20 lakh in a financial year, they are liable to pay TDS (Tax Deducted at Source). It’s important to note that this regulation specifically applies to individuals who have not filed Income Tax Returns (ITR) for three consecutive years. Such individuals will be subject to TDS if they withdraw more than Rs 20 lakh from any bank, cooperative, or post office.
Benefits for income tax return filers:
On the positive side, individuals who regularly file their Income Tax Returns (ITR) receive additional exemptions under this provision. Those who file ITR can withdraw cash up to Rs 1 crore in a financial year from their bank, post office, or cooperative bank account without incurring TDS.
What is the Required Payment for TDS?
In accordance with this regulation, a 2 percent TDS will be levied if your bank account withdrawal exceeds Rs 1 crore. For those who haven’t filed ITR continuously for the past three years, a 2 percent TDS is applicable on cash withdrawals exceeding Rs 20 lakh, while withdrawals surpassing Rs 1 crore will incur a 5 percent TDS.
Existing Charges on ATM Transactions:
Beyond the stipulated limit, banks impose a fee for cash withdrawals from ATMs. Effective January 1, 2022, the RBI has increased the service charge for ATM cash withdrawals to Rs 21 (previously Rs 20). Most banks offer five free transactions per month from their ATMs, with an additional three free transactions permitted at ATMs of other banks. However, in metro cities, only three free transactions are allowed per month from one’s own bank.”
