Section 194N TDS on Cash Withdrawal from Bank/Post offices

Last Updated On: July 13, 2021, 8:38 p.m.
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SECTION 194N TDS ON CASH WITHDRAWAL FROM BANKS/POST OFFICES

 

Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn from a particular payer in a financial year.

The section will apply to withdrawals made by any taxpayer including:

  • 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)
  • The following payers are covered under this section:
  • Any bank (private or public sector)
  • A co-operative bank
  • A post office

 

REASON FOR INTRODUCING SECTION 194N:

The government has introduced Section 194N in the Union Budget 2019 proposed on 5 July 2019. In order to discourage cash transactions in the country and promote the digital economy, ‘Section 194N – TDS on cash withdrawals over and above Rs 1 crore’ has been introduced through the Finance Bill, 2019.

 

Who is responsible to deduct tax under section 194N of Income Tax Act, 1961?

Every person, being,—

(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);

(ii) a co-operative society engaged in carrying on the business of banking; or

(iii) a post office,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts (savings/current )maintained by the recipient with it .

 

Who is the Payee?

TDS deduction on cash withdrawal u/s 194N is applicable to all taxpayers, including

  • 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)

 

Are there any exemptions to TDS on cash withdrawal u/s 194N?

No tax shall be deducted if amount is withdrawn from the bank or post office by following recipients:

1. Central or State Government

2. Banks

3. Co-op. Banks

4. Post Office

5. Banking correspondents

6. White label ATM operators

7. Other persons notified by the Govt. in consultation with the RBI

Such other person or class of persons as notified by Central Government

a) Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s)

b) Commission agent or trader, operating under Agriculture Produce Market Committee (APMC), and registered under any Law relating to Agriculture Produce Market

c) The authorized dealer and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by the RBI and its franchise agent.

 

When to Deduct TDS under Section 194N?

At the time of payment of such sum

 

Rate & Threshold limit  of TDS under Section 194N

(i) If an individual receiving the money has filed income tax return for any of the three years immediately preceding the year, then TDS to be deducted is an amount equal to 2% of withdrawal sum exceeding one crore rupees

(ii) If an individual receiving the money has not filed income tax return for all the three years, for which the time limit of filing return of income under Section 139(1) has expired, immediately preceding the year, then the TDS is 2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and 5% for withdrawal exceeding Rs 1 crore. (Amendment w.e.f 01.07.2020)

 

How 194N should be applied in case of cash withdrawals involving joint accounts?

This is a grey area where there could be multiple view-points. Let’s consider an example: Husband and wife has individual accounts in a Bank. They also have a joint account in the same bank. Let’s say they have withdrawn upto 92 lakhs from their individual accounts in cash. Now, the husband intends to withdraw Rs. 11 lakhs from their joint account in cash. In this case, one might argue that only 50% of cash withdrawal should be attributed towards husband and TDS may not be required, but this may not be appropriate. Whether Rs. 11 lakhs cash withdrawal is made by husband or wife, the limit should be treated as breached. This is so because both persons (in this case) are responsible for the operation of the account and qua each recipient the limit is reckoned from all accounts maintained in the bank. Even the banking software must be attuned to detect cash withdrawals breaching the specified threshold by duly considering cash withdrawals even in the joint accounts.

 

FAQ's on Section 194N:

 

1.What are the implications under Section 194N?

Section 194N is applicable in case of cash withdrawals of more than Rs. 1 crore during a financial year. This section will apply to all the sums of money or an aggregate of sums withdrawn from a particular customer in a financial year. Further, while calculating the limit of Rs 1 crore, cash withdrawals from all accounts maintained by a person with one bank are to be considered. The Bank will deduct tax @ 2% on the amount of cash withdrawn in excess of Rs 1 crore.

 

2. What is the recent amendment made in Section 194N?

The amended provisions which came into effect from July 1, 2020 require that in case a customer has not filed his return of income for all the 3 preceding years, for which the time limit of filing return of income has expired, then the tax required to be deducted by the Bank shall be:

• 2% where the aggregate of amounts being withdrawn in cash is between Rs 20 lakh and Rs 1 crore during the financial year; and

• 5% where the aggregate of amounts being withdrawn in cash exceeds Rs 1 crore during the financial year

For other customers, the Bank will deduct tax @ 2% for cash withdrawn in excess of Rs 1 crore

The tax will be deducted on the amount of cash withdrawal in excess of the applicable limits

 

3. Is this section applicable to Non-resident?

The section applies to cash withdrawals made by resident as well as Non-resident. Therefore, if a NRI withdraws an amount of ₹ 150 lakhs on 15.02.2020 from his NRE Account maintained in India, the bank shall deduct TDS of ₹1,00,000.

 

4. Whether TDS is applicable for cash withdrawals made by Charitable Institutions, Clubs, AOPs, Trusts, Resident Welfare Associations, etc. from its bank accounts?

If cash withdrawals exceed the prescribed threshold, it is applicable in case of all persons in general. However, exceptions are clearly defined in the third proviso. TDS is not applicable in case of the Government, Co-operative society engaged in banking business, business correspondent or ATM operator of a banking company or co-operative society engaged in carrying on the business of banking and other notified persons. This means 194N is applicable in all other cases including Charitable Institutions, Clubs, AOPs, Trusts, Resident Welfare Associations, etc

 

5. For customers who withdraw cash in the financial year 2021-22, which are the 3 financial years that are expected to be covered for return filing status?

The return filing status for financial years 2017-18, 2018-19 and 2019-20 has to be declared

 

6. What would be the rate of tax deduction at source in case the customer does not have a valid PAN?

In case the customer does not have either a valid PAN, then the rate of tax deduction will increase to 20%.

 

7. Whether the tax deducted at source by the Bank will appear in the customer’s Form 26AS?

Yes, on quarterly basis

 

8. Which are the various modes available to the customer for submitting the declaration?

The customer can submit the declaration via a URL link which the Bank will provide on the customer’s email id and/ or mobile no registered with the Bank. Physical declaration forms will also be available at the Bank’s branches.

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