Section 194N – TDS applicability on Cash Withdrawal in Excess of Rs. 1 Crore

The TDS applicability of Sec 194N which is introduced by the finance ministry in Union Budget 2019 with the aim of reducing the cash transactions (payments).

Simply, this Section talks about the provisions of deduction TDS on withdrawing cash in excess of Rs 1 crore. This is only a broad frame of the section.

Let’s discuss Sec 194N in detail:

First of all, we will have to understand what is Section 194N i.e., when 194N is applicable?

Section 194N is applicable on withdrawals of more than Rs 1 crore from banks/co-operative bank/post office during a financial year. It will apply to the withdrawal of all the sums of money or an aggregate of sums from a particular bank/co-operative bank/post office in a financial year.

Now, the question arises, on whom the section 194N is applicable?

So, this section is applicable to the taxpayer which includes;

• Individual
• HUF
• Company
• LLP or Partnership firm
• AOP or BOI

But apart from this, the Government has also notified that the provisions of this section are not apply to the following below mentioned persons if payment is made to: –

• Government
• Banking company i.e., bank whether public or private
• Co-operative bank
• A post-office
• Business correspondents of a banking company
• White Label ATM operators of any Bank or Co-operative bank
• Specified trader or commission agents operating under the Agriculture Produce Market Committee (APMC)
• An authorized dealer or agent/sub-agent of its franchise,
• RBI licensed Full-Fledge Money Changer (FFMC) or any agent from its franchise
• Any other person as may be notified by the Government of India from time to time.

As We have already gone through the concept that why Section 194N has been Introduced? So, this sec. has been introduced with the aim of minimizing the cash transactions and making the cashless economy in an effective way i.e., the more or more transactions will take place in digital form.

Now, what is the Rate of TDS under section 194N?

If a taxpayer will withdraw more than Rs 1 crore in a financial year than the payer will deduct TDS @ 2% on the amount which is withdrawn in excess of Rs 1 crore.

Let’s understand this with the help of an example, as below;

A taxpayer has withdrawn the amounts in cash from the bank during a single financial year in various phases as under:

Now, in the above example the person has withdrawn the cash amount on various dates, i.e., upto dated 29/11/2021, there will be no TDS applicability because the person’s limit of more than 1 crore has not been exhausted.

But, on 15/02/2022, he has withdrawn in excess of Rs 1 crore, therefore the TDS came into effect and TDS @2% will be deducted on an amount of Rs 10 lac’s i.e., in excess of Rs 1 crore, therefore TDS will be Rs 10 lacs * 2% = Rs 20,000.

Another provision of this section says that if the recipient receiving the money has not filed an income tax return for three years immediately preceding the year, the tax deduction limiti.e., provision of TDS will be applicable on withdrawing money in excess of Rs 20 lakh.

The TDS will be deducted at:

-2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and

-5% for withdrawal exceeding Rs 1 crore.