India Should Change to Fully Digital Transactions for a Better Economy- Section 194N TDS On Cash Withdrawals Effective from 01-07-2020

SEC 194N – TDS on cash withdrawal in excess of Rs. 1 Crore

Cash Payment: A form of liquid funds given by a consumer to a provider of goods or services as compensation for receiving those products. In most domestic business transactions, a cash payment will typically be made in the currency of the country where the transaction takes place, in paper currency.

Everyone should change their transaction system from cash transactions to digital transactions.

More than 1.7 billion people in the world are still unable to participate in the formal financial system. The majority are women. This makes it extremely difficult for poor people to save for the future, provide for their family’s health and children’s education, or invest in a business. The harsh reality is that the only way to make or receive payments for many poor people across the world is by using paper money in the informal sector – which is a barrier to the use of formal financial services. Cash-based transactions are also typically unsafe, expensive, inconvenient, inefficient, and lack transparency for governments, companies, and citizens alike.

When digital payments—whether on mobile phones, cards, or online —become available to everyone, everyone in the economy can benefit from the outcomes! These include:

  • Cost savings through increased efficiency and speed
  • Transparency and security by increasing accountability and tracking, reducing corruption and theft as a result
  • Financial inclusion by advancing access to a range of financial services, including savings accounts and insurance products
  • Women’s economic participation by giving women more control over their financial lives and improving economic opportunities
  • Inclusive growth through building the institutions that form the bedrock of an economy and the cumulative effect of cost savings, increased transparency, financial inclusion, and greater women’s economic participation

The government of India has taken initiatives to encourage Digital Payments instead of Cash Payments.

The Digital India program is a flagship program of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of the professed roles of Digital India.

As part of promoting cashless transactions and converting India into less-cash society, various modes of digital payments are available

These Modes are:

1. Banking Cards – http://cashlessindia.gov.in/banking_cards.html

2. USSD (Unstructured supplementary services data) – http://cashlessindia.gov.in/ussd.html

3. AEPS (Aadhaar Enabled Payment System)- http://cashlessindia.gov.in/aeps.html

4. UPI (Unified Payments Interface)- http://cashlessindia.gov.in/upi.html

5. Mobile Wallets – http://cashlessindia.gov.in/mobile_wallets.html

6. Banks Pre-Paid Cards – http://cashlessindia.gov.in/banks_prepaid_cards.html

7. POS (Point of Sale) – http://cashlessindia.gov.in/pos.html

8. Internet Banking – http://cashlessindia.gov.in/internet_banking.html

9. Mobile Banking – http://cashlessindia.gov.in/mobile_banking.html

10. Micro ATM’s – http://cashlessindia.gov.in/micro_atms.html

In Business, most of the day-to-day transactions are done by cash,

To restrict these cash payments there is a section in Income Tax

Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day

Otherwise than

1. By an account payee cheque

2. Account payee bank draft

3. ECS (Electronic clearing system) or

4. Such other electronic mode as prescribed in rule 6ABBA

Rule 6DD.

No disallowance under Sec 40A (3) shall be made and no payment shall be deemed to be the profits and gains of business or profession under Sec 40A(3A)

Where payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account exceeds

1. Payment made to

a) RBI

b) STATE BANK OF INDIA

c) Any Co-operative Bank or Land mortgage bank

d) Any PACS (Primary Agriculture credit society or any primary credit society)

e) LIC

2. Payment is made to the Government as such payment is required to be made in Legal Tender.

3. Payment is made by

a) Any letter of credit arrangements through a bank

b) A mail or telegraphic transfer through a bank

c) A book adjustment from any account in a bank to any other account in that or any other bank.

d) A bill of exchange made payable only to a bank.

4. Payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee

5. Where the payment is made for the purchase of

a) Agricultural or forest produce

b) The produce of animal husbandry (including livestock, meat, hides, and skin) or dairy or poultry farming; or

c) Fish or fish products

d) The products of horticulture or apiculture (Honey bees)

e) To the cultivator, grower or producer of such articles, produce or products.

f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products

g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town,

h) where any payment is made to an employee of the assessee or the heir of any such employer, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees,

i) where the payment is made by an assessee by way of salary to his employee after deducting the income tax from salary in accordance with the provisions of section 192 of the Act, and when such employee:

    • is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship, and
    • does not maintain any account in any bank at such a plane or ship.

j) Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.

k) Where the payment is made by an authorized dealer or a money changer against the purchase of foreign currency or travelers’ cheque in the normal course of his business.

Here the Story Begins

Payments of certain amounts in cash

 Every person, being, —

Payers: The person who is responsible for making payments

1. A Banking Company

2. A Co-operative society

3. A post office

The above all persons who are engaged in the banking activities

Being the amount or the aggregate of amounts,

Exceeding in cash > 1 Crore rupees during the previous year

 To any person (recipient)

The section will apply to withdrawals made by any taxpayer including:

1. An Individual

2. A Hindu Undivided Family (HUF)

3. A Company

4. A partnership firm or an LLP

5. A local authority

6. An Association of Person (AOPs) or Body of Individuals (Bois) 

from one or more accounts maintained, at the time of payment of such sum, deduct an amount equal to two percent of such sum, as income- tax.

Example:

Amount Paid to Recipient Amount Exceeded More than Rs.1 crore TDS Rate TDS Amount
Rs.99,00,000 Nil N.A. Nil
Rs.1,00,00,000 Nil N.A. Nil
Rs.1,01,00,000 Rs.1,00,000 2% Rs.2,000

Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that—

Financial year Assessment year Due Date of filing Returned
18-19 19-20 31-08-2019 No
17-18 18-19 31-08-2018 No
16-17 17-18 31-08-2017 No

 The Returns have not filed for those Assessment years.

 (I) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and

(ii) the deduction shall be—

(a) an amount equal to two percent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or

(b) an amount equal to five percent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

As per Income Tax

Amount Withdrawn in cash (Rs.) Amount Exceeded (Rs.) TDS Rate (Rs.) TDS Amount to be deducted (Rs.)
15,00,000 Nil  N.A. Nil
20,00,000 Nil N.A. Nil
21,00,000 1,00,000 2% 2000
1,00,00,000 80,00,000 2% 1,60,000
1,01,00,000 1,00,000 5% 5000

My Interpretation;

Amount Withdrawn in cash (Rs.) Amount Exceeded (Rs.) TDS Rate (Rs.) TDS Amount to be deducted (Rs.)
15,00,000 Nil  N.A. Nil
20,00,000 Nil N.A. Nil
21,00,000 1,00,000 2% 2000
1,00,00,000 80,00,000 2% 1,60,000
1,01,00,000 81,00,000 5% 4,05,000

If the TDS deducted as per Income Tax Interpretation, then everyone will use this interpretation to reduce the TDS amount.

Comparison Between Returned filed persons and Non-Filer of Returns.

The assessee filed IT returns                     Non-filer of IT returns

 –

Cash Withdrawn TDS Rate Cash Withdrawn TDS Rate
22,00,000 Nil 22,00,000 2% on Rs. 2,00,000
1,02,00,000 2% on Rs.2,00,000 1,02,00,000 5% on Rs.2,00,000

Provided further that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at a reduced rate if such recipient satisfies the conditions specified in such notification:

Provided also that nothing contained in this 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):

Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at a reduced rate if such recipient satisfies the conditions specified in such notification.]

Author Bio

Qualification: CA in Practice
Company: Anna & Associates
Location: Machilipatnam, Andhra Pradesh, IN
Member Since: 04 Jun 2020 | Total Posts: 4

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