TDS on Cash Withdrawal – The prime objective of demonetization (note ban) and the introduction of e-payments was to make the economy more transparent and cash-free. While these measures were not enough to completely free the economy from the use of cash, some additional policies and penal decisions from the Government of India, at times were also taken to restrict the cash flow. (This step is important as the cash economy is normally the black money economy).
To have more strict penal implications on the use and withdrawal of cash, the Government with the issue of its Notification no. 70/2019 has now proposed for the charge of TDS (Tax Deducted at Source) on certain transactions made in cash above Rs 1 crore.
Here in this blog, you will get to know all the about the Section 194N (provisions governing the charge of TDS on cash withdrawal above Rs 1 crore).
Tax Deducted at Source (Section 194N)
Section 194N in the Income Tax Act provides for the charge of TDS (Tax Deducted at Source) on certain cash withdrawals made by taxpayers over and above Rs 1 crore. Section 194N has been introduced through the Finance Bill, 2019, which defines the Section applicability, the transactions involved and the penal provisions applicable in case of contravention of any rule under the said section.
Text of TDS Section 194N in Income Tax Act,1961 :
Every person, being,—
(i) 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);
(ii) a co-operative society engaged in carrying on the business of banking; or
(iii) a post office,
who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, above 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, deducts an amount equal to two percent of sum exceeding one crore rupees, as income-tax:
Provided that nothing contained in this sub-section shall apply to any payment made to,—
(i) the Government;
(ii) any banking company or a co-operative society engaged in carrying on the business of banking or a post office;
(iii) 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);
(iv) 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);
(v) Such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.]
Explanation and Understanding of the above provision:
Effected from 1st September 2019, any withdrawal made above Rs 1 crore by any taxpayer from a single account or in aggregate from all accounts holding in any single bank/cooperative society or post office in a financial year shall be subject to charge of 2% of TDS, which will be deducted by the paying banker.
Applicability – TDS Section 194N
Section 194N is applicable to all taxpayers including Individual, HUF, Company/Firm or Partnership/Local Authority, Associations or Persons (AOPs) and on all Body of Individuals (BOI) or as identified by the Income Tax law as eligible to pay tax under this section.
For payment makers, all Banks (Private or Public or Co-operative) registered under the Banking Regulation Act & RBI guidelines and post offices shall be covered under this section for deducting TDS while making payment above Rs 1 crore.
Charge of TDS and Credit – TDS Section 194N
TDS under Section 194N shall be charged at the rate of 2% for cash withdrawals above Rs 1 crore. TDS will be
deducted at the point of payment by the payment maker.
For charge and calculation of TDS, the aggregate amount is more than 1 crore withdrawn:
- From multiple accounts in the same bank/post office.
- From a single account in a single bank/post office; shall be considered.
For instance, Mr. Kaushik withdraws the following amounts from branches of SBI in the year 2020 :
April – 50 lakh from Branch A – Account 1.
May – 15 lakh from Branch B – Account 1
June – 21 lakh from Branch C – Account 2
August – 25 lakh from Branch A – Account 2
September – 10 lakh from Sind Bank Branch – Account 1
The TDS chargeable in this case shall be :
|From Branch A – Account 1.||50,00,000|
|From Branch B – Account 1||15,00,000|
|From Branch C – Account 2||21,00,000|
|From Branch A – Account 2||25,00,000|
|From Sind Bank Branch – Account 1||10,00,000|
|The amount eligible to charge TDS under Section 194N||1,11,00,000-1,00,00,000= 11,00,000|
|TDS @ 2% on Difference||22,000|
Q1. Will withdrawals from different banks be also charged under TDS Section 194N?
The limit of Rs 1 crore is of ‘account holdings with per bank’ and not of the total withdrawals from all banks.
Q2. On which amount will the TDS be charged?
TDS will be charged on the amount exceeding Rs 1 crore, not including Rs 1 crore in the chargeable value. For instance, total withdrawals in the year are Rs 1,28,00,000, So TDS will be charged on Rs 28 lakhs and not on Rs 1 crore 28 lakh.
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