In the Union Budget Sec 194M and Sec 194N of Income Tax Act, 1961 has introduced with a view to encourage digital payments and discourage the practice of making payments in cash, the Union Budget 2019 has introduced Section 194N for deduction of tax at source (TDS) on cash withdrawals exceeding Rs 1 crore.
Let’s Discuss the Section 194N of Income Tax Act,1961
♦ Who is Deductor of Tax under Section 194M:
Every person, being, —
(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii) a co-operative society engaged in carrying on the business of banking; or
(iii) a post office
♦ Who is Deductee under Section 194M:
Any person other than following
(i) the Government;
(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;
(iii) 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);
(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 (51 of 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.
♦ When TDS is deductible under Section 194M:
At the time of payment in Cash.
♦ Transactions Covered under Section 194M:
Payments in Cash by Banking company or Co-operative bank or a post office. (That is nothing but withdrawing Cash from Banking company or Co-operative bank or a post office)
♦ Threshold Limit for Tax deduction under Section 194M:
is 1 Crore. i.e aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person from one or more accounts maintained by the recipient.
♦ Rate of Tax deduction under Section 194M:
Tax is deductible at the rate of 2 percentage of payment (or Aggregate of payment) in cash exceeding Rs. 1 Crore.
♦ Lower TDS Certificate:
Note: Tax deducted under Section 194N, not to be treated as deemed receipt – Tax deducted (under section 194N) shall not be deemed to be income received for computing income of recipient (for the purpose of Section 198).