Section 194N- TDS on Cash Withdrawal from Bank

Last Updated On: July 16, 2020, 10:03 p.m.
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SECTION 194N- TDS ON CASH WITHDRAWAL FROM BANK

The Government has introduced Section 194N in the Union Budget 2019 with an aim to discourage cash transactions in our country and to promote Digital Economy.

Section 194N for Tax Deduction at Source on cash withdrawals exceeding Rs.1 Crore was introduced by the Finance Minister in Union Budget 2019. This section applies to an aggregate of sums withdrawn from a particular payer in a financial year.

The Scope of TDS on cash withdrawal has been extended under the amended Section 194 N. If the withdrawal has filed his tax return for the three years and withdrawal during the year exceeds Rs.20 Lakhs but less than Rs. 1 Crore. For withdrawal exceeding Rs.1 Crore the rate of TDS charged will be 5%.

The Amendment of Section 194N has come into existence from 1st July 2020.

The section is applied to the withdrawals made by taxpayers who are an individual, A Hindu Undivided Family (HUF), a Company, a partnership firm, or an LLP, a local authority, an Association of Person (AOPs) or Body of Individuals (BOIs).

We should also be aware that this section will not be applicable to government bodies, banks including co-operative banks, business correspondents of a banking company, white-label ATM operator of any bank, farmers whom the Central Government specifies the commission agent or trader.

Central Board of Direct Tax has exempted cash withdrawal by the authorized dealer and its franchise agent and sub-agent, and Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent from TDS under Section 194N The person (payer) making the cash payment will have to deduct TDS under Section 194N, which includes any bank (both public or private), a co-operative bank, and post office.

TDS under Section 194N tax shall be required to be deducted only when the aggregate amount of cash withdrawal during the previous year by a person from one or more of his bank or post office account exceeds Rs.20 Lakhs and the said person has not filed his Income Tax Returns for the last three years.

Aggregate Cash withdrawal in the F.Y Rate of TDS if ITR of the last three years are filed Rate of TDS if ITR of last three years NOT are filed
Upto Rs.2lakhs NIL NIL
Rs.20 lakhs- Rs. 1Crore NIL 2%
Exceeding Rs.1 Crore 5% 5%

 

Some important key points related to Section-194N:

  • The condition for filing ITR is for all 3years. If you have filed ITR only for 1 or 2 years, then the TDS rate will be 2% up to Rs.1 Crore and 5% TDS rate for the withdrawal exceeding Rs.1 Crore.
  • This section will be applicable to all types of accounts including savings/Current/Cash Credit/Overdraft.
  • TDS shall be deducted on the amount exceeding up to Rs.20 lakhs/ Rs.1 Crore only.
  • The amount deducted as TDS shall be refunded against your tax liability at the time of filing Income Tax return.

 

Let us understand with a simple example:

If Mr. ‘Y’ has filed all his returns and if he withdraws cash up to Rs.1 Crore then no TDS will be applicable. In case Mr. ‘Y’ withdraws cash which is more than Rs. 1 Crore then only 2% TDS will be applicable. On the other hand if Mr. ‘Z’ has not filed all his returns and if he withdraws cash from Rs. 20 Lakh to Rs. 1 Crore then 2% of the TDS will be applicable. In case Mr. ‘Z’ withdraws cash which is more than Rs. 1 Crore then 5% TDS will be applicable

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