All about TDS Section 194N of the IT Act, 1961

1. What is TDS Section 194N?

TDS Section 194N was introduced in the union budget of 2019 by the Finance Minister, Nirmala Sitharaman. The section has been further amended in Budget 2020. The section covers provisions regarding TDS on cash withdrawal. By introducing the section, the Government aimed to discourage cash transactions. This is a small step by the Central Government towards a cash-less economy.

2. What is the rate of TDS on Cash Withdrawals under Section 194N? 

TDS on cash withdrawal is deducted at 2% at the time of payment of any sum, being the amount or the aggregate of amounts, in cash exceeding one crore rupees during the previous year.

By:

1. A Bank or
2. A co-operative society engaged in banking business or
3. A post office

To any person (individual, partnership firm, LLP, Pvt. Ltd., Public Ltd., AOP, etc.), being an account holder

Effective Date: Section 194N has become effective w.e.f. 01.09.2019

Notes:

1. TDS shall be deducted under this section against that portion of cash withdrawal that is exceeding one crore rupees during a financial year.
2. Where a recipient maintains more than one accounts in a particular bank or co-operative society or post office, may be with one or more branches of the bank/co-operative society/post office, entire withdrawals from all the branches of a particular bank, etc. shall be aggregated for the purpose of this section.
3. Where a recipient maintains more than one account in different banks/ co-operative - societies, rupees one crore shall be calculated considering cash withdrawal from each bank/co-operative society separately.
4. TDS shall be applicable where cash is withdrawn by an account holder. Where an account holder issuing bearer cheque in name of third party, no TDS under this section shall be applicable on the encashment of the cheque by the payee.

3. Example of TDS on Cash Withdrawal 

Mr. A maintains 4 bank accounts, 3 accounts are maintained in three different branches (say branch A, B and C) of SBI. One account is maintained with Axis Bank. During the financial year 2019-2020 he has withdrawn cash in the following manner:

From SBI
Branch A: Rs. 40,00,000/-
Branch B: Rs. 45,00,000/-
Branch C: Rs. 20,00,000/-
From Axis Bank: Rs. 30,00,000/-
Total cash withdrawal from SBI Rs. 105,00,000/-.

SBI shall deduct TDS @2% on Rs. 5,00,000/-. i.e. Rs. 10,000/-. No TDS shall be deducted by Axis bank.

4. Stringent provision for failing to file ITR under TDS Section 194N

Where the recipient of cash

• has failed to file Income Tax Return for three consecutive previous years immediately preceding the previous year in which payment of sum was made to him and
• the time limit for filing ITR u/s 139(1) has expired for all those three years.

then the provision of this section shall be applicable with a modification that TDS shall be deducted @2% against cash withdrawal in excess of Rs. 20 Lakh but up to 1 crore and TDS shall be deducted @5% against cash withdrawal in excess of Rs. 1 Crore

5. Exceptions under TDS Section 194N

This section shall not be applicable in case of payment made to:

• Government.
• Any bank or co-operative society carrying on banking business or post office.
• Any business correspondent of a bank or Co-operative society carrying on banking business.
• Any white label ATM operator of a bank or co-operative society carrying on banking business.

Note: ATMs set up, owned and operated by non-banks are called white label ATMs

6. Exemption by the issue of notification under Section 194N

CBDT in consultation with the RBI has issued several notifications u/s 194N. The section does not apply to the following persons:

• Cash replenishment agencies (CRAs); and Franchise agents of white label ATM operators (WLATMOs) maintaining a separate bank account from which withdrawals are made solely to replenish cash in the ATMs operated by the WLATMOs. (See CBDT notification no. 68/2019, dated 18-09-2019).
• Registered commission agents or traders regulated at state level by an Agriculture Produce Market Committee (APMC). (See CBDT notification no. 70/2019, dated 20-09-2019).
• Authorized dealers, their franchise agents and sub agents; and RBI-licensed full-fledged money changers and their franchise agents. (See CBDT notification no. 80/2019, dated 15-10-2019)