Section 194N: TDS on Cash Withdrawal

Union budget 2019 had introduced a new section 194N – TDS on cash withdrawal. After that certain amendments have come under section 194N in budget 2020.

Section 194N of Income Tax Act 1961

Section 194N applies when a person (payee) withdraws cash more than Rs. 1 crore during a financial year from any of the following:

• Any Bank (whether public or private)
• Post office
• Co-operative bank

Then the Banks / Co-operative Bank / Post Office (payer) has to deduct TDS upon such withdrawal.

As section 194N two conditions apply for withdrawal of cash.

If a person has filed all ITR's

Limit: Rs. 1 Crore

Example:

If Mr. X withdrew more than 1 crore from a bank then the bank has to deduct TDS of the excess amount over Rs. 1 crore while making payment.

If a person has not filed ITR for the last 3 years

Limit: Rs. 20 lacs

Example:

If Mr. X withdraws Rs. 90 lacs and has not filed ITR for the last 3 years preceding the year of withdrawal then the bank will deduct TDS after crossing the limit for cash withdrawal i.e. 20 lacs.

TDS Rate under section 194N

Applicability of section 194N

Section 194N is applicable on withdrawals made by the following:

• An Individual
• A Hindu Undivided Family
• A Company
• Partnership firm or Limited Liability Partnership
• An Association of person
• Body of Individuals
• A Local Authority

Non Applicability of section 194N

Section 194N is not applicable on withdrawals made by the following:

• Government body
• Bank (including Co-operative bank)
• White label ATM operator of any bank including a co-operative bank
• Business correspondent of banking company including a co-operative bank
• Any other person notified by the government

Important Points

• The Limit of Rs. 1 crore / Rs. 20 lacs as the case may be calculated with respect to each bank/ post office / co-operative bank separately.
• Example: If Mr. X has two accounts in two different banks and he has filed all ITR’s then he can withdraw Rs. 1 crore * 2= Rs. 2 crores (i.e. 1 crore from each bank)
• Different facilities with the same bank (i.e. saving account, current account, etc.) should be aggregated while calculating the limit.
• TDS to be deducted over the excess amount of limit during a financial year.