To minimize the cash transaction and to promote digital payment modes like NEFT, IMPS, UPI, E-Wallet, POS, Mobile Banking, Internet Banking and so on, the Hon'ble Finance Minister has introduced TDS on Cash Withdrawal under Section 194N in the Union Budget 2019 (Section 194N is applicable w.e.f 01st September 2019) and Section 194N has been amended vide Clause 84 of The Finance Act 2020 (Amendment to Section 194N is applicable w.e.f 01st July 2020 discussed in later part of this article). In this article, we will talk about the TDS rate, Applicability of Section 194N, when to deduct TDS and other aspects of this provision.
WHO WILL DEDUCT TDS UNDER SECTION 194N?
Every person who is engaged in Banking Activities, namely:
a Banking Company (including any banking Institutions)
a co-operative society engaged in carrying on the business of banking
a Post Office
WHEN WILL TDS BE DEDUCTED UNDER SECTION 194N?
When a banking company as specified above pays any sum exceeding Rs.1 Crore in Cash (i.e account holder withdraws cash exceeding 1 crore) to recipient namely:
A Hindu Undivided Family (HUF)
A partnership firm or an LLP
A local authority
An Association of Person (AOPs) or Body of Individuals (Bois)
from one or more accounts maintained by the recipient, such banking companies are required to deduct TDS at 2% of the amount exceeding 1 Crore rupees.
TDS will be deducted by the payer while making payment exceeding Rs.1 crore. If the recipient withdraws money in intervals in such a case TDS will be deducted when aggregate of such amount from one or more account (considering all the Savings as well as Current Account in a bank, of the recipient) exceeds Rs.1 crore in a financial year.
Let us see an example for better clarification:
AMENDMENT TO SECTION 194N (APPLICABLE FROM 01ST JULY 2020):
If the recipient has not filed the Income Tax Return for all of preceding three assessment years for which the due date for Tax Filing as per section 139(1) of the Income Tax Act, has been expired and in the current year his cash withdrawals from banks:
Exceed Rs.20 Lakhs but less than Rs.1 crore, in such case TDS at 2% shall be deducted on the amount exceeding Rs.20 lakhs.
Exceed Rs.1 Crore, in such case TDS at 5% shall be deducted on the amount exceeding Rs.1 Crore.
Return filing criteria for determining TDS Rate for calculating TDS on cash withdrawals is applicable w.e.f 01st July 2020.
Let us see an example for a case where "recipient has not filed Income Tax Return for 3 years immediately preceding the current year " for better clarification:
NON APPLICABILITY OF SECTION 194N:
Section 194N shall not apply to withdrawals made by following:
any banking company or a co-operative society engaged in carrying on the business of banking or a post office
any business correspondent of a banking company or co-operative society
any white label automated teller machine (ATM) operator of a banking company