In order to further discourage cash transactions and move towards less cash economy, it is proposed to insert a new section 194N in the Act to provide for levy of TDS at the rate of two per cent 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 an account maintained by the recipient.

It is proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision. It is proposed to empower the Central Government to exempt other recipients, through a notification in the official Gazette in consultation with the Reserve Bank of India.

This amendment will take effect from 1st September, 2019.

[Clause 46]

Extract of Clause 46 of Finance Bill 2019

46. Insertion of new section 194N.

Payment of certain amounts in cash.

194N. Every person, being,––

(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank cash. or banking institution referred to in section 51 of that Act); 10 of 1949.

(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, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent. 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 co-operative society engaged in carrying on the business of banking or a post office;

(iiii) 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;

(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 authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 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.’.

Note on Clause 46 of Finance Bill 2019

Clause 46 of the Bill seeks to insert new section 194N relating to payment of certain amounts in cash in the Income-tax Act.

The proposed new section 194N provides that a banking company or a co-operative society engaged in carrying on the business of banking or a post office, which is responsible for paying any sum or aggregate of sums, in excess of one crore rupees in cash during the previous year to any person (referred to as the recipient in the section) from an account maintained by the recipient with such banking company or co-operative society or post office shall, at the time of payment of such amount, deduct an amount equal to two per cent. of sum exceeding one crore rupees as income-tax.

The proviso to the said section provides that the provisions of the proposed new section shall not apply to any payment made to the Government, any banking company, co-operative society engaged in carrying on the business of banking, post office, business correspondent of a banking company or co-operative society, engaged in carrying the business of banking, any white label automated teller machine operator of a banking company or co-operative society engaged in carrying the business of banking, or such other persons or class of persons, which the Central Government may, specify by notification in consultation with the Reserve Bank of India,.

These amendments will take effect from 1st September, 2019.

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