The Finance Bill, 2019 has introduced Section 194N in the Income Tax Act 1961 to provide for TDS @2% on cash withdrawls exceeding 1 crore from one or more bank accounts.

1. According to section 4(2) of the Income Tax Act, 1961, the charging section for TDS, “income tax shall be deducted at source in respect of income chargeable to tax”.

Since cash withdrawls are not income per se and not included in the definition of income under section 2(24) of the Income Tax Act 1961, this proposal of 2% TDS on cash withdrawls is ultra vires the Income tax act.

2. Further under Section 199, Credit of TDS is allowed in the assessment year when corresponding Income is chargeable to Tax. Since Income is also defined under section 2(24) of Income Tax Act and does not include any cash withdrawls, this creates a situation where TDS credit on bank withdrawls can be denied to an assessee.

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