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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.

Section 194N: TDS on Cash Withdrawal

TDS Rate under section 194N

Cash withdrawal Limit (in Rs.)

Person filling all ITR’s

Person not filing ITR of last 3 years preceding the year of withdrawal

20 lacs up to 1 crore

Not applicable

TDS @2%

More than 1 crore

TDS @2%

TDS @5%

 

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.
 

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Category Income Tax, Other Articles by - Finwealthcare 



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