The Finance act, 2020, amended with section.194N with an intention of curb black money and track the persons those having huge cash withdrawal from bank and not filed their return of income as per the requirement under income tax act.

Section.194N requires to TDS on some specified conditions and specified amount, the detailed implication of this section discussed below

1. To whom this section applies

  • The person those are withdrawing cash from their bank account or accounts ( The recipient)
  • Aggregate amount of cash withdrawal from one or more accounts maintained by the  recipient is  exceeding Rs.1 Crore
  • Aggregate amount of cash withdrawal from one or more accounts maintained by the recipient is exceeding Rs.20 lakhs and not furnished their  return of income for all the 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.

2. The person responsible to deduct the tax

1. A Banking company including the banking institutions referred under sec.51 of banking regulation act.

2. A Co-operative society engaged in carrying on the business of banking

3. A Post office

3. TDS rate as per this section to be deducted

  •  TDS rate @ 2% of the withdrawal amount – for the aggregate amount of cash withdrawal from one or more accounts maintained by the recipient is exceeding Rs.1 Crore
  • TDS rate @ 2% of the withdrawal amount – Aggregate amount of cash withdrawal from one or more accounts maintained by the recipient is exceeding Rs.20 lakhs but not exceeding Rs.1 Crore and not furnished their  return of income for all the 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
  •  TDS rate @ 5% of the withdrawal amount – Aggregate amount of cash withdrawal from one or more accounts maintained by the recipient exceeding Rs.1 Crore and not furnished their  return of income for all the 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

 4. The provision of section not applies to

Any payment made to

1. The Government

2. Any banking company or co-operative society engaged in carrying on the business of banking or a post office

3. 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)

4. 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 (51 of 2007)

In the view of implementation of this section.194N the income tax department already provided the verification of applicability of sec.194N functionality in the Income tax filing website to the banks & post offices.

The Income tax department also now released the new functionality “ITR Filing Compliance Check which will be available to the scheduled commercial banks to check the income tax return filing status of PAN holders in bulk mode.

This section.194N will impact on day to day basis of business operation specifically the business involved in huge cash till now and they have to move to the banking mode of payments to avoid the TDS under section 194N and further consequences under the income tax act.

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