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Section 194N | TDS on cash withdrawal from banks/post offices

CA.R.S.KALRA 
on 02 March 2021

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[Applicable from September 1, 2019]

194N. Every person, being,-

  • a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
  • a co-operative society engaged in carrying on the business of banking; or
  • a post office,

who is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income-tax:

Provided that in case of a recipient who has not filed the returns of income for all 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, the provision of this section shall apply with the modification that-

  • the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and
  • the deduction shall be-
    • an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
    • an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

Provided further that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification:

Provided also that nothing contained in this section shall apply to any payment made to-

  • the Government;
  • any banking company or co-operative society engaged in carrying on the business of banking or a post office;
  • 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);
  • 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):

Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification. ]

Section 194N   TDS on cash withdrawal from banks/post offices

1. Who is responsible to deduct tax u/s 194N?

Every person, being,-

  • a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
  • a co-operative society engaged in carrying on the business of banking; or
  • a post office ,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it .

2. Who is the Payee?

TDS deduction on cash withdrawal u/s 194N is applicable to all taxpayers, including

  • An Individual
  • A Hindu Undivided Family (HUF)
  • A Company
  • A partnership firm or an LLP
  • A local authority
  • An Association of Person (AOPs) or Body of Individuals (BOIs)
 

3. Are there any exemptions to TDS on cash withdrawal u/s 194N?

No tax shall be deducted if amount is withdrawn from the bank or post office by following recipients:

  1. Central or State Government
  2. Banks
  3. Co-op. Banks
  4. Post Office
  5. Banking correspondents
  6. White label ATM operators
  7. Other persons notified by the Govt. in consultation with the RBI

Notification 70/2019: TDS not required on payments to registered commission agent or trader, operating under Agriculture Produce Market Committee (APMC) who has certified that the cash withdrawal is for the purpose of making payments to the farmers on account of purchase of agriculture produce.

4. When to Deduct TDS under Section 194N?

At the time of payment of such sum

5. Rate & Threshold limit of TDS under Section 194N

  • If an individual receiving the money has filed income tax return for any of the three years immediately preceding the year, then TDS to be deducted is an amount equal to 2% of withdrawal sum exceeding one crore rupees
  • If an individual receiving the money has not filed income tax return for all the three years, for which the time limit of filing return of income under Section 139(1) has expired, immediately preceding the year, then the TDS is 2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and 5% for withdrawal exceeding Rs 1 crore. (Amendment w.e.f 07.2020)
 

No Relaxation in rate of TDS through CBDT Press release dated 13th May, 2020.

The recipient cannot apply for lower deduction certificate u/s 197 and cannot furnish form no. 15G/15H.

Aggregate amount of cash withdrawal

If the recipient has FILED return of income for ANY of the 3 previous years

If the recipient has NOT FILED return of income for ALL of the 3 previous years

Upto Rs. 20 Lakhs

NIL

NIL

More than Rs. 20 Lakhs but upto Rs. 1 Crore

NIL

2%

More than Rs. 1 Crore

2%

5%

6. Is this section applicable to Non-resident?

The section applies to cash withdrawals made by resident as well as Non-resident. Therefore, if a NRI withdraws an amount of Rs. 150 lakhs on 15.02.2020 from his NRE Account maintained in India, the bank shall deduct TDS of Rs. 1,00,000.

7. Applicability of section when amount is withdrawn from one or more account maintained with same bank/cooperative bank?

Date of cash withdrawn

Cash withdrawn from saving account

Cash withdrawn from current account

01-04-2019

20,00,000

20,00,000

05-07-2019

5,00,000

10,00,000

31-08-2019

4,00,000

25,00,000

01-09-2019

50,00,000

45,00,000

01-03-2020

65,00,000

20,00,000

Total amount withdrawn

In Financial Year 2019-20

- Up to 31-08-2019

29,00,000

55,00,000

From 01-09-2019 onwards

1,15,00,000

65,00,000

 

Tax to be deducted

328000{ (26400000-10000000)*2%}

As Section 194N has been inserted in Income-tax Act with effect from 01-09 2019, the tax shall be required to be deducted only after the said date. However, for the purpose of calculation of threshold limit of Rs. 1 crore, the aggregate amount of cash withdrawn from one or more accounts during the previous year shall be considered.

8. Applicability of section when amount is withdrawn from different branches of same bank?

The limit of Rs 1 crore has to be seen for cash withdrawals made from all branches of a bank.

Illustration-

ABC LTD has withdrawn cash from following branches of Bank of India during the financial year on -

Dates

Branch

Amount

01.07.2019

Delhi Branch

Rs. 70 Lakhs

01.10.2019

Kolkata Branch

Rs. 80 Lakhs

01.12.2019

Chandigarh Branch

Rs. 90 Lakhs

In this case the bank shall deduct TDS on 01.10.2019 at the rate of 2% on

Rs. 50,00,000/- (1.50 crores - 1 crore) i.e.Rs. 1,00,000/- from the payment of Rs. 80,00,000/-. Similarly bank shall deduct TDS on 01.12.2019 at the rate of 2% on Rs. 90,00,000/- i.e.Rs. 1,80,000/- from the payment of Rs. 90,00,000/-.

9. Applicability of section when amount is withdrawn from different banks?

The cash withdrawals from two different banks shall not be aggregated for the limit of Rs. 1 Crore.

Illustration-

ABC LTD has withdrawn cash from following Banks during the financial year on -

Dates

Bank

Amount

01.07.2019

HDFC BANK

Rs. 70Lakhs

01.08.2019

SBI BANK

Rs. 70Lakhs

01.12.2019

BANK OF INDIA

Rs. 70Lakhs

In this case neither of the banks is liable to deduct TDS under Section 194N.

10. Applicability of Section when assessee has not filed return in previous three Assessment Years

Illustration- Mr. Y -Not Filed his returns for 3 preceding Assessment years 2019-20, 2018- 19 & 2017-18. Mr. Y has withdrawn cash from the bank in following installments-

Date

Amount Withdrawn

30 April

10 Lakh

31 May

15 Lakh

31 July

25 Lakh

30 Sept

80 Lakh

In the present case scenario, no TDS will be deducted by bank on withdrawal of amount on 30 April & 31 May because the aggregate of the said amounts does not exceed Rs.1 Crore and there is no applicability of Section if aggregate withdrawal not crosses the limit of Rs. 1 Crore.

Bank is liable to deduct TDS on withdrawal of amount of Rs. 30 Lakh on 31 July because the aggregate of the said amounts (i.e.50 Lakh) during the financial year 2020-21 is exceeding the limit of Rs. 20 Lakh. Bank shall deduct TDS on 31.07.2020 at the rate of 2% on Rs. 30, 00,000/- i.e.Rs. 60,000/- from the payment of Rs. 2500000/-.

On 30 September, bank shall deduct TDS on 30.07.2020 at the rate of 2% on Rs. 50, 00,000/- i.e.Rs. 1,00,000/- and at the rate of 5% on Rs. 30, 00,000/- i.e Rs. 1, 50,000 from the payment of Rs. 80, 00,000/-.


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