Plugging loopholes, the government July 18 brought an amendment to its Budget proposal to levy tax on high value cash withdrawals, saying a two per cent tax will be charged if aggregate cash withdrawal from one or more accounts exceeds Rs 1 crore.
In the Budget presented on July 5, Finance Minister Nirmala Sitharaman had provided for 2 per cent tax deduction at source (TDS) on Rs 1 crore cash withdrawal from "an account" to discourage high value cash withdrawal.
Fearing this provision could be misused by persons holding multiple accounts, she brought an amendment to the Finance Bill, 2019, to state that TDS will be charged if aggregate withdrawal from "one or more accounts" of a person exceeds Rs 1 crore.
The amendment, along with 28 others, were approved by a voice vote by the Lok Sabha, which passed the Finance Bill 2019.
The Finance Bill amendment replaced "an account" to "one or more accounts".
Further, the amendments to the Finance Bill also clarified that the total TDS paid on cash withdrawal beyond Rs 1 crore will be adjusted against the total tax dues of the taxpayer and would not be constituted as income in hands of the taxpayer. This provision would come into effect from September 1, 2019.
"I want to assure the members that if there are people who are taxpaying citizens, who have withdrawn like this, this TDS will be adjusted against the total tax dues.
"So, it is not over and above what he is expected to pay as tax, but it is going to be reconciled with the total tax claims which is going to be laid on this individual. So, it is not something which is running parallel to it," Sitharaman said while replying in the debate on Finance Bill.
Nangia Advisors (Andersen Global) Managing Partner Rakesh Nangia said there was a possibility that people may misuse the TDS provision by maintaining various bank accounts.
"The amended proposal provides that if a person maintains more than one account with the same bank, the bank shall aggregate the withdrawals made from all such accounts to compute the threshhold. Though this amendment plugs the loophole but partially, since even not a person can maintain various accounts with difference banks and withdraw less than Rs 1 cr from each such bank to avoid the TDS," Nangia said.