TDS under section 194N - Latest changes

The Govt.of India through Finance Act 2019 had introduced a new section 194N in the Income Tax Act 1961, to provide for levy of Tax Deduction at Source (TDS) @ 2% on Cash payments in excess of One Crore Rupees in aggregate made during the year, by a Banking Company or cooperative Bank or post office, to any person from one or more accounts maintained with it by the recipient. This came into effect from 1st September 2019.

There were certain changes made from the Financial Year 2020-21 with effect from July 1, 2020:

• In case the recipient has not filed the income tax return for preceding 3 financial years: TDS will be deducted at 2% on Rs.20 lakhs to 1 crore amount withdrawn and 5% on the amount exceeding Rs.1 crore during the financial year
• In case the recipient has filed the income tax return for preceding 3 financial years: TDS shall not be deducted up to Rs. 1 crore of the amount withdrawn and 2% on the amount exceeding Rs.1 crore during the financial year.

Conditions to get the benefit of lower deduction under section 194N:

1. Assessee should not only have filed the income tax returns for preceding 3 financial years but also returns should be filed within the due dates as given in section 139(1)

2. Newly incorporated entities may not be able to take the benefit of lower deduction who have not filed the income tax returns for the preceding 3 financial years

3. Assessee has to provide a declaration to the banker/co-operative society engaged in carrying on the business of banking/post office for filing the income tax returns for preceding 3 financial years

Exemption from TDS section 194N:

• The Government
• any banking company or a 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 authorization issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007)

Source of information: www.incometaxindia.gov.in