Section 194N - TDS on Cash Withdrawal w.e.f. July 1, 2020.

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Section 194N: Cash withdrawal during the previous year from one or more account maintained by a person with a banking company, co-operative society engaged in business of banking or a post office:

i) in excess of Rs. 1 crore

ii) in excess of Rs. 20 lakhs*

* for those persons who have not filed return of income (ITR) for three previous years immediately preceding the previous year in which cash is withdrawn, and the due date for filing ITR under section 139(1) has expired. The deduction of tax under this situation shall be at the rate of:

a) 2% from the amount withdrawn in cash if the aggregate of the amount of withdrawal exceeds Rs. 20 lakhs during the previous year; or

b) 5% from the amount withdrawn in cash if the aggregate of the amount of withdrawal exceeds Rs. 1 crore during the previous year.

  

Section 194N for deduction of tax at source (TDS) on cash withdrawals exceeding Rs. 1 crore was introduced by the Finance Minister in the Union Budget 2019.

This section applies to an aggregate of sums withdrawn from a particular payer in a financial year.

The Government has introduced Section 194N in the Union Budget 2019 with the objective to discourage cash transactions in the country and promote the digital economy.

Section 194 N of the Income Tax Act has been amended vide clause 84 of the Finance Act 2020.

The Scope of TDS on cash withdrawal has been extended under the amended Section 194 N.

TDS at the rate of 2% is required to be deduced if the withdrawer has not filed his tax return for three years and withdrawal during the year exceeds Rs 20 lakhs but less than Rs 1 crore. For withdrawal more than Rs 1 crore TDS at the rate of  5% is required to be deducted.

The Amendment of Section 194N will be with effect from July 1, 2020.

The section will apply to withdrawals made by taxpayers who are:-

Individual,
Hindu Undivided Family (HUF),
Company,
a partnership firm, or an LLP,
local authority,
Association of Person (AOPs) or Body of Individuals (BOIs).   

 However, 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.

 CBDT exempts 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, as the case may be, exceeds Rs. 20 Lakhs and the said person has not filed his Income Tax Returns for the last three years.

Further, the tax shall be required to be deducted only on the amount exceeding Rs. 20 Lakhs.

For example, if Mr. ‘A’ has filed all his returns and if he withdraws cash up to Rs. 1 Crore then no TDS will be applicable.

In case Mr. ‘A’ withdraws cash which is more than Rs. 1 Crore then only 2% TDS will be applicable.

On the other hand if Mr. ‘B’ 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. ‘B’  withdraws cash which is more than Rs. 1 Crore then 5% TDS will be applicable.

TDS will be deducted by the payer while making the cash payment over and above Rs 1 crore in a financial year to the payee. If the payee withdraws a sum of money on regular intervals, the payer will have to deduct TDS from the amount, once the total sum withdrawn exceeds Rs 1 crore in a financial year.

Income tax Department makes new utility for banks, Post offices to check TDS rate on high value cash withdrawals

 

CBDT said that the functionality of “Verification of applicability u/s 194N” on the income tax website has been available since July 1, 2020, and has also made available to the Banks through web-services so that the entire process can be automated and be linked to the bank’s internal core banking solution.

"Banks or post offices only have to enter the PAN of the person who is withdrawing cash for ascertaining the applicable rate of TDS, which will show an automatic instant message displaying the TDS rate that is to be deducted," the Board said in a statement.

CBDT said that the data on cash withdrawal indicated that huge amounts of cash is being withdrawn by the persons who have never filed income-tax returns.

On the following link you can check "verification of applicability u/s 194N":-

https://www1.incometaxindiaefiling.gov.in/e-FilingGS/Services/ViewReturnStatusLink.html?lang=eng

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