While introducing the new applicability of TDS levy on cash withdrawals under newly inserted Section 194N, the Finance Minister Shri Nirmala Sitharam in her budget speech elaborated that the Government has taken a number of initiatives for promotion of the digital payments and less cash economy. She stated that to promote the digital payment and to discourage the practice of making business payments in cash, it is hereby proposed to levy TDS of 2% on cash withdrawal exceeding INR 1 Crore in a year from the bank account.
Accordingly, moving one step frontward towards cash less economy and to discourage the cash transaction, the Union Budget 2019 proposed insertion of new section 194N into the Income Tax Act, 1961. Recently on 1st August 2019, the Finance Bill 2019 has got President’s assent resulting the proposed insertion to be a law.
In the present article, we would try to understand the categories of a person liable to deduct TDS under section 194N, Applicability of TDS, Rate at which TDS is to be deducted and exemptions available under section 194N,
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Category of the person liable to deduct TDS under section 194N
Following categories of persons are liable to deduct TDS –
1. A banking company (to which the Banking Regulation Act, 1949 is applicable and also includes any bank / banking institution referred in section 51 of the Banking Regulation Act, 1949); and
2. A co-operative society carrying on the banking business; and
3. A post office.
Applicability of TDS under Section 194N
The above referred categories of persons are liable to deduct TDS under section 194N when they are paying any sum in cash in excess of INR 1 Crore during the previous year to any person.
The rate at which TDS is to be deducted under section 194N
TDS is deductible at the rate of 2% at the time of payment of the sum to the Deductee.
List of Exemptions available under section 194N
Payment made to below categories of person is exempted –
1. The Government; and
2. Any Banking Company; and
3. A co-operative society engaged in carrying on the banking business; and
4. A post office; and
5. Any business correspondent of the banking company / co-operative society engaged in carrying on the banking business; and
6. Any white label automated teller machine (ATM) operator of a banking company / co-operative society engaged in carrying on the banking business.
Effective date of Applicability of Section 194N
Provisions of newly inserted section 194N of the Income Tax Act, 1961 shall be effective from 1st September 2019.
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