Withdrawals Now Taxed: Know the Limits Before You Cash Out

Understanding Withdrawal Rules on Your Bank Account

Managing funds in a bank account involves more than just deposits and withdrawals; it also requires awareness of specific financial rules. Knowing these guidelines is essential to avoid unnecessary taxes and fees.

Think Twice Before Making Large Withdrawals

If you’re accustomed to withdrawing money whenever you need, it might be time to reconsider. Larger withdrawals, exceeding certain thresholds, may incur tax deductions at the source (TDS). Planning your withdrawals can help you steer clear of these extra charges. Both ATM and bank transactions are subject to these regulations, so it’s crucial to know how much you can withdraw without triggering a TDS.

Withdrawal Limits and Tax Rules Explained

There’s a common misconception that you can withdraw unlimited amounts from your bank account without any costs. However, under Section 194N of the Income Tax Act, withdrawals over ₹20 lakh within a financial year incur a TDS for those who haven’t filed Income Tax Returns (ITR) for three consecutive years. If a person hasn’t filed ITR in this timeframe, TDS will apply on withdrawals exceeding this limit from any bank, cooperative, or post office account.

Special Provisions for Regular ITR Filers

For account holders who file ITR regularly, the withdrawal limit is much more generous. Such individuals can withdraw up to ₹1 crore in a financial year from any bank, cooperative, or post office account without facing TDS deductions.

TDS Rates on Large Withdrawals

When it comes to substantial cash withdrawals, specific TDS rates apply. If a withdrawal exceeds ₹1 crore, TDS is deducted at a rate of 2%. For individuals who haven’t filed ITR for three years, TDS rates are 2% on amounts over ₹20 lakh and 5% on withdrawals above ₹1 crore.

ATM Withdrawal Charges Already Apply

In addition to TDS on large bank withdrawals, charges also apply on ATM withdrawals that exceed set limits. As of January 1, 2022, the Reserve Bank of India raised the service fee for ATM transactions beyond the prescribed limit to ₹21. Banks typically allow five free transactions per month at their ATMs and three at ATMs from other banks. However, customers in metropolitan areas only get three free withdrawals at their bank's ATM.

Keeping these rules in mind can help you plan your withdrawals wisely, avoiding unexpected fees and taxes.