Arjun (Fictional Character): Krishna, there has been a change in TDS on cash withdrawal u/s 194N. What are the provisions of section 194N?
Krishna(Fictional Character): Arjuna, section 194N for TDS on cash withdrawals exceeding the threshold limit was introduced in Finance Act 2019 to discourage cash transactions and promote digital payments. Upto 30.06.2020, banks (private or public sector), Co-operative banks and post offices are liable to deduct TDS on cash withdrawals under this section at 2% if the cash withdrawal exceeds Rs.1 crore during a financial year.
Arjun (Fictional Character): Krishna, please explain the changes made in section 194N by Finance Act 2020 from 01.07.2020?
Krishna(Fictional Character): Arjuna, From 1.7.2020, if the withdrawer has not filed income tax return for all the three preceding years, TDS at 2% is required to be deducted if withdrawal during the year exceeds Rs.20 lakhs but less than Rs.1 crore and TDS at 5% to be deducted if the withdrawal exceeds Rs.1 crore. If income tax returns for all the three years have been filed then there is no change i.e. TDS will be deducted at 2% on cash withdrawals exceeding Rs.1 crore in a year. But if PAN is not available then TDS will be deducted at 20% instead of the applicable rate of 2% or 5%.
Arjun (Fictional Character): Krishna, when and how the TDS will be deducted?
Krishna(Fictional Character): Arjuna, TDS is to be deducted at the time of cash withdrawal. TDS will be applicable only when the cumulative amount of cash withdrawal exceeds the threshold limit. Further TDS is deductible only on amount exceeding the threshold limit and not the total amount of withdrawal. For example, if Mr. A has filed all his returns and withdraws Rs.40 lacs in first withdrawal and in the next withdrawal, an amount of Rs.1.20 crores is withdrawn, then TDS is deductible only on excess amount of Rs.60 lakhs at 2%. The cash withdrawals from all the accounts under one bank/institution will be considered above purpose.
Arjun (Fictional Character): Krishna, to whom the above provisions are not applicable?
Krishna(Fictional Character): Arjuna, TDS will not be applicable on payment to government, banks including co-operative banks, post office, business correspondents of banking company, white-label ATM operator of any bank, farmers whom the Central Government specifies the commission agent or trader. CBDT also exempts cash withdrawal by the authorized dealer and its franchise agent and sub-agent, and Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent from TDS under Section 194N.
Arjun (Fictional Character): Krishna,what care should be taken by the taxpayer and what will be impact of above amendment?
Krishna(Fictional Character): Arjuna,the taxpayers should ensure that PAN is linked to their accounts and submit details of returns filed otherwise TDS will be deducted at higher rates. The department can easily access and investigate into matter of huge cash transactions. It is hoped that withdrawal will not be deemed to be income of the recipient due to deduction of TDS and the objective of promoting digital economy is achieved.
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