In order to discourage cash transactions and move towards less cash economy, With effect from 01/09/2019 a new Section 194N is inserted to levy for TDS at the rate of 2% on cash payment in excess of Rs. 1 crore in aggregate made during a financial Year.
The Scope of TDS on cash withdrawal has been extended with effect from 01.07.2020 and TDS at 2% will be required to be deduced if the withdrawer has not filed his tax return for three years and withdrawal during the year exceeds Rs 20 lakhs but is less than Rs 1 crore. For withdrawal more than Rs 1 crore at 5%.
Who is Liable to deduct tax?
Following persons are liable to deduct TDS under section 194N
√ Any Bank,
√ A Co-operative Bank
√ A Post Office
To Whom This Section Applies?
Any Person making withdrawls for more than Rs. 1 crore rupees in a FY including
√ Partnership Firm or an LLP
√ Local Authority
√ Association of Persons
√ Body of individuals
Payee To Whom Section 194N not Applies?
√ Any Government Body
√ Any Bank
√ A Co operative Bank
√ A Post Office
√ Any white label ATM operator
√ Any other Person Specified by RBI
When Section 194N is attracted by Payee?
Any Person making Cash Withdrawl in aggregate for more than Rs. 1 Crore Rupees from one or more accounts maintained with the payer in a Finacial Year.
Rate of TDS
The Tax Shall be deducted at the rate of 2% on the cash withdrawl in excess of Rs. 1 Crore.
As Clarified by CBDT for Financial Year 19 -20 TDS is applicable only on cash withdrawn on or after 01/09/2019 because this section is applicable from 01/09/2019. But for ascertaining the limit of Rs. 1,00,00,000 for FY 19-20, Cash withdrawal prior to 01/09/2019 shall also be considered as limit is applicable per financial year.
Example: Mr. N make the following Cash withdrawls from Account maintained with State Bank of India during FY 19-20. Determine TDS to be Deductible by the State Bank of India?
Solution: As per section 194N, State Bank of India is liable to deduct TDS @2% on cash withdrawn by Mr. N in FY 19-20 in excess of Rs. 1 Crore.
So TDS to be deductible: Rs. 10,00,000*2% = Rs. 20,000
Example: XYZ Ltd withdraw cash of Rs. 2,00,00,000 upto 31/08/2019 and Rs. 60,00,000 on or after 01/09/2019. Detemine TDS Liability?
Solution: As per section 194N TDS will not be deductible on cash amount withdrawl before 01/09/2019 in excess of Rs. 1,00,00,000 so no TDS will be deducted on Rs. 1,00,00,000 withdrawn before 01/09/2019 but for determining the limit cash withdrawn prior to 01/09/2019 shall also be considered so XYZ Ltd withdraw cash during FY 19 -20 Rs. 2,60,00,000,
So TDS to be deducted = Rs. 60,00,000*2% = Rs. 1,20,000.