Section 194N of Income Tax Act (TDS on Cash Withdrawal)

Section 194N of income tax act had been introduced in union budget 2019 for deduction of tax deducted at source (TDS) on cash withdrawal in excess of Rs. 1 crore.

After that budget 2020 has come with certain amendments under this section. It’s a new section of TDS introduced in budget. Along with this section 194M has also come into existence.

Now let’s understand in detail about section 194N of Income Tax Act 1961.

     

    What is Section 194N of Income Tax Act?

    Section 194N applies to deduct TDS on cash withdrawals of more than Rs. 1 crore during a financial year.

    Following can deduct TDS under this section:

    • Any Bank (Public or Private)
    • Post office
    • A co-operative bank, can deduct TDS.

    Means if an individual (payee) withdrew in cash from bank (payer) in excess of Rs.1 Crore during the financial year then bank has to deduct TDS of the excess amount over Rs. 1 Crore.

    Now point to be noted is that if the individual (payee) i.e. who is withdrawing the amount in cash has not filed his income tax returns for last 3 years then the limit to deduct TDS for such persons reduced to Rs. 20 Lacs.

    Means if a person withdraws in excess of Rs. 20 lacs either from bank, co-operative bank or post office then TDS should be deducted on excess amount of Rs. 20 lacs.

     

    When section 194N will apply?

    Section 194N of income tax act 1961 will apply on withdrawals made by following assesse:

    • An Individual
    • A Hindu undivided family (HUF)
    • A company
    • A partnership firm or an limited liability partnership (LLP)
    • An Association of Person (AOPs) or Body of Individual (BOIs)
    • A Local authority

    Following are the taxpayers on whom section 194N will not apply upon withdrawals made by:

    • Government body
    • Any Bank including co-operative banks
    • Business correspondent of banking company including co-operative banks
    • White label ATM operator of any bank including co-operative banks.
    • Any other person notified by government

     

    Who will have to deduct TDS under Section 194N?

    Following are the payer, who has to deduct TDS while making payment to the withdrawer (payee):

    • Any Bank (Public or Private)
    • Post office
    • A co-operative bank 


    When to deduct TDS under section 194N?

    Person to filling all the returns

    TDS to be deducted by the payer (i.e.Bank), when a person is withdrawing cash in excess of Rs. 1 crore during a financial year.

    Example: If Mr. X withdrew from a Bank cash of amount Rs. 50 Lacs on 1-8-2020 then no TDS to be deducted as the amount is less than Rs. 1 crore but if he again withdrew in the same year, let’s say on 1-10-2020 an amount of Rs.75 Lacs then total withdraw during a year is Rs. 50 Lacs + Rs. 75 Lacs = Rs. 125 Lacs which is excess of Rs.1 Crore then TDS to be deducted on excess amount i.e. 25 lacs.

    Person has not filled returns of last 3 years preceding the year of withdrawal:

    In case person has not filled returns of last 3 years then TDS to be deducted on withdrawals exceeds the amount of Rs. 20 lacs during the financial year.

    Important Point:

    While calculating the limit of withdraws during the year, you do not have to consider the aggregate of your all accounts in different banks. This limit is with respect to each bank or post office or cooperative banks.

    Example: If Mr. X has 4 bank accounts in different banks and if filed all his income tax returns then the limit of Rs. 1 crore is with respect to each bank i.e. Mr. X can withdrew total of Rs. 4 crore (i.e. 1 crore per bank).

    And if A person taking different facilities like saving account, current account etc. in same bank then aggregate of all these have to be considered for limit.

     

    What is the rate of TDS under Section 194N?

    Person is filling all his returns

    • Cash withdrawal upto Rs. 1crore = No TDS
    • Cash withdrawal in excess of Rs.1 crore = TDS @ 2%

    Person has not filed income tax returns of last 3 years preceding the year of withdrawal:

    Cash withdrew:

    • 20 lacs upto 1 crore = TDS @2%
    • More than 1 crore = TDS @5%

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