CBDT introduces ITR Filing Compliance Check for TDS on Cash Withdrawals u/s 194N

Central Board of Direct Taxes (CBDT) has issued “ITR Filing Compliance Check” Functionality for Scheduled Commercial Banks to check the Income Tax Return (ITR) status in bulk for the purpose of Tax Deduction at Source (TDS) on cash withdrawals under Section 194N of the Income-tax Act, 1961 (ITA).

As per the data available with CBDT, huge amount of cash is being withdrawn by the non-filers of ITRs. To ensure ITR filing and to keep track on cash withdrawals by the ITR non-filers, and to curb black money, the Finance Act, 2020 with effect from 1 July, 2020 further amended Section 194N of ITA and provided lower cash withdrawal threshold of INR 2 Million for TDS applicability on non-filers who have not filed their ITR for three previous years and also directs higher TDS at 5% on cash withdrawal exceeding INR 10 Million by these non-filers.

The banks have been provided a functionality for verification of applicability under Section 194N of the ITA for Banks & Post offices since 1st July 2020 to arrive at applicable TDS rate under Section 194N of the ITA for an Individual withdrawing cash by entering his/ her Permanent Account Number (PAN). This proved a cumbersome time-consuming task for banks when they had to verify the status of ITR filing of each account holder separately. An account holder had to submit the proof concerning ITR filing for the previous 3 financial years to the bank. However, with this new bulk check functionality, it’s easy for banks to check whether a cash withdrawer comes under the expanded provision or not. Moreover, now individuals can’t get away easily without paying taxes and/or filing ITR on time.

The Principal Director General of Income-tax (Systems) has notified the procedure and format for providing notified information to the Scheduled Commercial Banks (SCBs). These SCBs can also opt to automate and integrate this process with their Core Banking Solution (CBS) software. SCBs must document and implement appropriate information security policies and procedures to ensure information security.

CBDT notified on 31st August 2020, the SCBs for the purposes of Section 138 of ITA. As per the same, income tax authorities can share information with the SCBs.

The complete text of the notification may be viewed at below link:

We, at MBG Corporate Services, have an in-depth understanding of these provisions and assist taxpayers in the tax filings and compliances.

Last updated: 15th September 2020

This Article is contributed by:

Kartik Chhabra

Senior Manager – Direct Tax