Section 194N is pertaining to Tax Deducted At Source for withdrawal Cash by any person from,

  • a banking company to which Banking Regulation Act 1949 applies,
  • a cooperative society engaged in carrying on the business of banking; or
  • a post office

who is responsible for any sum, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year, to any person (recipient) from one or more accounts maintain by the recipient with it shall , at the time of payment of such sum, deduct an amount equal to two percent of such sum, as income tax.

Please remember that, this section is applicable to all tax payers, which includes

  • An Individual
  • Hindu Undivided Family
  • A partnership firm or LLP
  • A Company
  • A local authority
  • An Association of Person or Body of Individuals,

But does not includes:

  • The Government  (Central or State Government)
  • Any banking company or co operative society engaged in carrying on the business of banking,
  • Post Office
  • Any white label automated teller machine operator of a banking company or co operative society engaged in carrying on its business of banking, in accordance with the authorization issued by Reserve Bank of India.
  • Central Government may specify on consultation with Reserve Bank of India by notification.

Amendment from 1st July, 2020

In case of 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 filing  returns of income section 139(1)  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.

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

(b) the deduction shall be

    • an amount equal to two percent of the sum whether the amount or aggregate amounts, as the case may be, being paid in cash exceeds rupees twenty lakhs during the previous year but does not exceed one crore rupees; or
    • 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 rupees one crore during the previous year.

Up to 30th June, 2020 cash payment by banks  exceeds rupees one crore amount of TDS two percent. There was no upper limit.

From 1st July, 2020 cash payment by banks exceeds rupees twenty lakhs and the recipient has not submitted his return of income for all of the three assessment years within time limit of section 139(1), bank will deduct tax at source by two percent. Please remember that if the recipient, has submitted his return of income of previous year after due date but filed under section 139(4) is not to be considered.

If the amount of cash payment by bank exceeds rupees one crore, Five percent tax will be deducted by the bank.

Example:

XYZ LTD has withdrawn cash from their bank accounts for the payment to wages, salaries, other expenses on various dates as under:

Dates Amounts   Dates Amounts
18.04.2019 Rs. 20,00,000 02.07.2019 Rs. 20,00,000
02.10.2019 Rs. 30,00,000 02.01.2020 Rs. 25,00,000
01.02.2020 Rs. 15,00,000   25.03.2020 Rs. 20,00,000

In the above case bank will deduct TDS on 01.02.2020 at the rate of 2% on Rs. 10,00,000. On 01.02.2020 total payment by bank in cash exceeds Rs. 1,00,00,000 ( 20,00,000 + 20,00,000 + 30,00,000 + 25,00,000 + 15,00,000 ) Rs.1,10,00,000. TDS Rs. 20,000 and make payment of Rs. 14,80,000

Again bank will deduct TDS on 25.03.2020 at the rate of 2% on Rs.20,00,000 i.e. Rs.40,000 and bank will make payment of Rs. 19,60,000.

After 01.07.2020

Mr. A who has not furnished his return of income of three previous year. He withdraw cash from bank on following dates, when bank will deduct tax and on what amount?

Dates Amounts   Dates Amounts  
02.07.2020 Rs.15,00,000 03.08.2020 Rs.20,00,000 
02.09.2020 Rs.50,00,000  03.10.2020 Rs.40,00,000

In the above case bank will deduct tax on 02.08.2020 at the rate of 2% on Rs.35,00,000, and make payment of Rs. 19,30,000. On 02.09.2020 at the rate of 2% on Rs.50,00,000, and make payment of Rs. 49,00,000. On 03.10.2020 at the rate of 2% on Rs. 15,00,000 and at the rate of 5% on Rs. 25,00,000 as it exceed rupees one crore  (30,000 + 1,25,000) Rs.1,55,00 .

Dates Amount of Withdrawal Tax Deducted at Source Payment received
02.07.2020 Rs.15,00,000 Rs.  15,00,000
03.08.2020 Rs.20,00,000 Rs.  70,000 Rs.    19,30,000
02.09.2020 Rs.50,00,000 Rs.1,00,000 Rs.    49,00,000
03.10.2020 Rs.40,00,000 Rs.1,55,000 Rs.  38,45,000
  Rs.1,25,00,000 Rs.3,25,000 Rs. 1,21,75,000

The above change is effective from 1st July, 2020.

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