The two percent tax deduction at source (TDS) for cash payments over Rs 1 crore, as proposed in the July 2019 Budget, will be effective from September 1 (tomorrow). Any banking company, cooperative bank or post office, or any person who makes cash payments in excess of one crore rupees from one or more accounts will be subjected to two percent TDS.

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If a person has already withdrawn Rs 1 crore or more in cash between April 1 and August 31, 2019, from one or more accounts, two percent TDS will apply on all subsequent cash withdrawals, a Central Board of Direct Taxes (CBDT) notification clarified in a statement.

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"The CBDT, having considered the concerns of the people, hereby clarifies that section 194N inserted in the Act, is to come into effect from 1st September, 2019. Hence, any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under section 194N of the Act. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 1st April, 2019," the statement said. 

CBDT received queries from people through social media on the applicability of this section on withdrawal of cash from April 1 to August 31, 2019, following which it issued a statement clearing the doubts. To discourage cash transactions and promote digital payments, the government inserted a new section, 194N, in the Income-tax Act, 1961, in 2019.

Nirmala Sitharaman in her maiden Budget in 2019 proposed to levy two percent TDS on the cash withdrawal of more than Rs 1 crore from a bank account in one financial year.