Overview of Section 194N of Income tax Act

The Finance Act, 2020, amended section194N with an intention of curb black money and to track people having huge cash withdrawal from bank and who haven't filed their return of income as per the requirement under income tax act.

Under Section194N TDS is deducted on some specified conditions and specified amount, the detailed implication of this section has been discussed below:

1. Applicability of TDS section 194N

TDS Secton 194N is applicable to:

1. Person withdrawing cash from his/her bank account or accounts ( The recipient)
2. Aggregate  amount of cash withdrawal from one or more accounts maintained by the  recipient is  exceeding Rs.1 Crore
3. Aggregate amount of cash withdrawal from one  or more accounts maintained by the recipient is exceeding Rs.20 lakhs and not furnished their  return of income for all the of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him.

2. Who is liable to deduct tax under Section 194N?

1. A Banking company including the banking institutions referred under sec.51 of banking regulation act.
2. A Co-operative society engaged in carrying on the business of banking
3. A Post office

3. Rate of deducting TDS under Section 194N:

1. TDS rate @2% of the withdrawal amount - for the aggregate amount of cash withdrawal from one or more accounts maintained by the recipient is exceeding Rs.1 Crore /span>

2. TDS rate @ 2% of the withdrawal amount - Aggregate amount of cash withdrawal from one  or more accounts maintained by the recipient is exceeding Rs.20 lakhs but not exceeding Rs.1 Crore and not furnished their  return of income for all the of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him

3. TDS rate @ 5% of the withdrawal amount - Aggregate amount of cash withdrawal from one  or more accounts maintained by the recipient exceeding Rs.1 Crore and not furnished their  return of income for all the of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 & has expired, immediately preceding the previous year in which the payment of the sum is made to him

4. The provision of section not applies to:

Any payment made to -

1. The Government
2. Any banking company or co-operative society engaged in carrying on the business of banking or a post office
3. Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934)
4. Any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007)

In the view of the implementation of this section.194N the income tax department already provided the verification of applicability of sec.194N functionality in the Income tax filing website to the banks & post offices.

The Income-tax department also now released the new functionality “ITR Filing Compliance Check which will be available to the scheduled commercial banks to check the income tax return filing status of PAN holders in bulk mode.

This section 194N will impact on day to day basis of business operation specifically the business involved in huge cash trabsactions till now and now they have to move to the banking mode of payments to avoid the TDS under section 194N and further consequences under the income tax act.