TDS Section 194N: TDS on Cash Withdrawals above Rs. 20 lakhs

Paras Jain | Last updated: 13 January 2021

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Quick Summary

Section 194N of the Income Tax Act was introduced to encourage a less-cash economy by imposing TDS on significant cash withdrawals. Initially, it applied to withdrawals exceeding Rs 1 crore. However, an amendment effective from July 1, 2020, introduced stricter TDS rates for individuals who haven't filed their income tax returns for the three preceding assessment years.

In order to discourage cash transactions and move towards less cash economy, Section 194N was inserted vide Finance Act, 2019 (No.2). Following table shows the summarised details of the said section

TDS on Cash Withdrawals: Section 194N Explained

Section	194N
W.e.f	01-09-2019
Deductor	a) Any Banking company b) A co-operative Bank c) A post office,
Deductee	Any person except following a) Any government body b) Any bank including co-operative banks c) Any business correspondent of a banking company (incl. co-operative banks) d) Any white label ATM operator of any bank (incl. co-operative banks) e) Any other person notified by the government
Transaction	Cash Withdrawals
Threshold	Rs. 1 crore (TDS will be deducted on the amounts withdrawn in excess of Rs. 1 crore)
Rate	2%
Time of deduction	At the time of withdrawal

New Update

The Finance Act 2020 has extended the scope of the section to include persons who have not filed their Income tax returns for immediate preceding 3 Assessment Years.

With effect from 01-07-2020, if the recipient(deductee) has not filed ITR for all the 3 immediate preceding Assessment Years following will be rates of TDS u/s 194N for such person:

Withdrawal Amount	Rate
0 to Rs. 20 lakhs	0%
Rs. 20 Lakhs to Rs. 1 Crore	2%
Above Rs. 1 Crore	5%

FAQ :

Section 194N is a provision in the Income Tax Act that mandates Tax Deducted at Source (TDS) on cash withdrawals exceeding certain thresholds, aimed at discouraging cash transactions.

TDS under Section 194N is deducted by banking companies, co-operative banks, and post offices at the time of cash withdrawal.

Originally, TDS was applicable on cash withdrawals exceeding Rs 1 crore, at a rate of 2%.

From July 1, 2020, if a person has not filed their Income Tax Returns for the three preceding assessment years, different TDS rates apply: 0% on withdrawals up to Rs 20 lakhs, 2% on withdrawals between Rs 20 lakhs and Rs 1 crore, and 5% on withdrawals above Rs 1 crore.

Exemptions from TDS under Section 194N include government bodies, any bank (including co-operative banks), business correspondents of banks, white label ATM operators, and other persons notified by the government.

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About the Author

Paras Jain

Chartered Accountant

Qualified Chartered Accountant.Engaged in renderingConsultancy,Advisory and compliance services on Income Tax and related matters. Member of ICAI since May 2016.

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