1. Who is responsible to deduct tax u/s 194N?

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 responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it.

TDS on cash withdrawal from banks post offices

2. Who is the Payee?

TDS deduction on cash withdrawal u/s 194N is applicable to all taxpayers, including

  •  An Individual
  • A Hindu Undivided Family (HUF)
  • A Company
  • A partnership firm or an LLP
  •  A local authority
  • An Association of Person (AOPs) or Body of Individuals (BOIs)

3. Are there any exemptions to TDS on cash withdrawal u/s 194N?

No tax shall be deducted if amount is withdrawn from the bank or post office by following
recipients:

1. Central or State Government

2. Banks

3. Co-op. Banks

4. Post Office

5. Banking correspondents

6. White label ATM operators

7. Other persons notified by the Govt. in consultation with the RBI

  • Notification 70/2019: TDS not required on payments to registered commission agent or trader, operating under Agriculture Produce Market Committee (APMC) who has certified that the cash withdrawal is for the purpose of making payments to the farmers on account of purchase of agriculture produce.

4. When to Deduct TDS under Section 194N?

At the time of payment of such sum

5. Rate & Threshold limit of TDS under Section 194N

(i) If an individual receiving the money has filed income tax return for any of the three years immediately preceding the year, then TDS to be deducted is an amount equal to 2% of withdrawal sum exceeding one crore rupees

(ii) If an individual receiving the money has not filed income tax return for all the three years, for which the time limit of filing return of income under Section 139(1) has expired, immediately preceding the year, then the TDS is 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. (Amendment w.e.f 01.07.2020)

No Relaxation in rate of TDS through CBDT Press release dated 13th May, 2020.

The recipient cannot apply for lower deduction certificate u/s 197 and cannot furnish form no. 15G/15H.

 Aggregate amount of cash withdrawal If the receipient has FILED return of income for any of the 3 previous years If the receipient filed return of income for all of the 3 previous years
Upto Rs. 20 Lakhs NIL NIL
More than Rs. 20 Lakhs but upto Rs. 1 Crore NIL 2%
More than Rs. 1 Crore 2% 5%

6. Is this section applicable to Non-resident?

The section applies to cash withdrawals made by resident as well as Non-resident. Therefore, if a NRI withdraws an amount of ₹ 150 lakhs on 15.02.2020 from his NRE Account maintained in India, the bank shall deduct TDS of ₹1,00,000

7. Applicability of section when amount is withdrawn from one or more account maintained with same bank/cooperative bank?

Date of cash withdrawn Cash    withdrawn saving account from Cash      withdrawn from current account
01-04-2019 20,00,000 20,00,000
05-07-2019 5,00,000 10,00,000
31-08-2019 4,00,000 25,00,000
01-09-2019 50,00,000 45,00,000
01-03-2020 65,00,000 20,00,000
Total amount withdrawn In Financial Year 2019-20
– Up to 31-08-2019 29,00,000 55,00,000
From 01-09-2019 onwards 1,15,00,000 65,00,000
Tax to be
deducted
328000{ (26400000-10000000)*2%}

As Section 194N has been inserted in Income-tax Act with effect from 01-09 2019, the tax shall be required to be deducted only after the said date. However, for the purpose of calculation of threshold limit of ₹ 1 crore, the aggregate amount of cash withdrawn from one or more accounts during the previous year shall be considered.

8. Applicability of section when amount is withdrawn from different branches of same bank?

The limit of Rs 1 crore has to be seen for cash withdrawals made from all branches of a bank.

Illustration

ABC LTD has withdrawn cash from following branches of Bank of India during the financial year on

Dates Branch Amount
01.07.2019 Delhi Branch ₹70Lakhs
01.10.2019 Kolkata Branch ₹80Lakhs
01.12.2019 Chandigarh Branch ₹90Lakhs

In this case the bank shall deduct TDS on 01.10.2019 at the rate of 2% on ₹50,00,000/- (1.50 crores –1 crore) i.e.₹1,00,000/- from the payment of ₹80,00,000/-. Similarly bank shall deduct TDS on 01.12.2019 at the rate of 2% on ₹90,00,000/-i.e.₹1,80,000/- from the payment of ₹90,00,000/-.

9. Applicability of section when amount is withdrawn from different banks?

The cash withdrawals from two different banks shall not be aggregated for the limit of ₹ 1 Crore.

Illustration

ABC LTD has withdrawn cash from following Banks during the financial year on

Dates Bank Amount
01.07.2019 HDFC BANK ₹70Lakhs
01.08.2019 SBI BANK ₹70Lakhs
01.12.2019 BANK OF INDIA ₹70Lakhs

In this case neither of the banks is liable to deduct TDS under Section 194N.

10. Applicability of Section when assessee has not filed return in previous three Assessment Years

Illustration Mr. Y -Not Filed his returns for 3 preceding Assessment years 2019-20, 2018- 19 & 2017-18. Mr. Y has withdrawn cash from the bank in following installments-

Date Amount Withdrawn
30 April 10 Lakh
31 May 15 Lakh
31 July 25 Lakh
30 Sept 80 Lakh

In the present case scenario, no TDS will be deducted by bank on withdrawal of amount on 30 April & 31 May because the aggregate of the said amounts does not exceed Rs.1 Crore and there is no applicability of Section if aggregate withdrawal not crosses the limit of Rs. 1 Crore.

Bank is liable to deduct TDS on withdrawal of amount of Rs. 30 Lakh on 31 July because the aggregate of the said amounts (i.e.50 Lakh) during the financial year 2020-21 is exceeding the limit of Rs. 20 Lakh. Bank shall deduct TDS on 31.07.2020 at the rate of 2% on ₹30, 00,000/- i.e.₹60,000/- from the payment of ₹2500000/-.

On 30 September, bank shall deduct TDS on 30.07.2020 at the rate of 2% on ₹50, 00,000/- i.e.₹1,00,000/- and at the rate of 5% on ₹30, 00,000/- i.e ₹1, 50,000 from the payment of ₹80, 00,000/-.

Extract of Section 194N of Income Tax Act, 1961

194N. 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 responsible for paying 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 (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income-tax:

Provided that in case of a 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 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, the provision of this section shall apply with the modification that—

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

(ii) the deduction shall be—

(a) an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or

(b) an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

Provided further that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification:

Provided also that nothing contained in this section shall apply to any payment made to—

(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 Section  issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007):

Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification.]

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