194N HOW BANK WILL CHECK 20 LAKH or 1CR

Section 194N of the Income Tax Act governs the deduction of Tax Deducted at Source (TDS) on cash withdrawals. Banks and financial institutions use the Permanent Account Number (PAN) linked to your accounts to monitor compliance and determine the applicable TDS rate.

How Banks Monitor and Verify TDS

• PAN-Based Tracking: Banks aggregate all cash withdrawals (ATM, branch, etc.) made by a person across all accounts held with that specific bank using the PAN.

• Verification of Filing Status: Banks often use the Income Tax Department's official utility or portal to check the "TDS rate" status associated with a PAN. This system flags whether a taxpayer is a "filer" or "non-filer" for the purpose of Section 194N.

• Self-Declaration: In many cases, banks also rely on self-declarations from customers regarding their ITR filing status for the preceding three financial years.

Applicable Limits and TDS Rates

The threshold and the rate of deduction depend on your tax compliance history (whether you have filed your Income Tax Returns for the previous three assessment years):

Note: For Co-operative Societies, the threshold limit is ₹3 Crore.

Key Considerations

• Bank-Wise Limits: The limit applies per bank or post office. If you have accounts in multiple banks, the cash withdrawals from each bank are calculated separately.

• Inoperative PAN: If your PAN is inoperative (not linked with Aadhaar), the TDS rate may increase to 20% as per Section 206AA.

• Refunds: If your actual tax liability is lower than the amount deducted as TDS, you can claim the excess amount as a refund by filing your Income Tax Return.

Summary: Banks track your cumulative cash withdrawals per financial year across all your accounts with them using your PAN. They verify your ITR filing status through the Income Tax Department's system to apply the correct TDS rate (2% or 5%) once you cross the threshold of ₹20 Lakh (for non-filers) or ₹1 Crore (for filers).