If you think you can freely withdraw any amount from your bank account at any time, you might want to reconsider. Planning your withdrawals carefully can help you avoid unnecessary taxes. It’s crucial to know the limits on tax-free withdrawals per year. Not only do these rules apply to ATM transactions, but they also cover withdrawals directly from the bank.
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Cash Withdrawal Limits
Many people believe they can withdraw unlimited amounts of cash from their bank accounts without any fees. However, according to Section 194N of the Income Tax Act, if you withdraw more than Rs 20 lakh in a financial year, you will be subject to TDS (Tax Deducted at Source). This rule applies to individuals who have not filed their Income Tax Returns (ITR) for three consecutive years. Such individuals will need to pay TDS on any amount exceeding Rs 20 lakh withdrawn from banks, cooperative banks, or post offices.
Benefits for Regular Income Tax Filers
For those who regularly file their ITR, there is a higher threshold. These customers can withdraw up to Rs 1 crore in cash in a financial year without incurring any TDS from their bank, post office, or cooperative bank account.
TDS Rates for Withdrawals
Under this rule, if your cash withdrawals exceed Rs 1 crore in a financial year, a TDS of 2% will be deducted. For individuals who haven’t filed their ITR for the past three years, a 2% TDS applies to withdrawals exceeding Rs 20 lakh, and a 5% TDS is applicable to withdrawals exceeding Rs 1 crore.
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ATM Transaction Charges
In addition to these rules, banks also charge fees for ATM withdrawals that exceed the prescribed limits. Since January 1, 2022, the RBI has increased the service charge for such transactions. Banks now charge Rs 21 per transaction exceeding the limit, up from the previous Rs 20. Most banks offer five free ATM transactions per month from their own ATMs and three free transactions from other banks’ ATMs. However, in metro cities, you can only make three free withdrawals from your own bank’s ATMs per month.
Understanding these rules and planning your cash withdrawals accordingly can help you manage your finances better and avoid unnecessary taxes.
