1. Who is responsible to deduct tax under section 194N of Income Tax Act, 1961?

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 (savings/current )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No tax shall be deducted if amount is withdrawn from the bank or post office by following recipients: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

Such other person or class of persons as notified by Central Government

a) Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s)

b) Commission agent or trader, operating under Agriculture Produce Market Committee (APMC), and registered under any Law relating to Agriculture Produce Market

c) The authorized dealer and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by the RBI and its franchise agent.

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)

    • It is to be noted that there is a difference of opinion regarding thereturns of income for all of the three assessment years relevant to the three previous years, for which the time limit to file return of income u/s 139(1) has expired, immediately preceding the previous year in which the payment of the sum is made to him. In this connection, it is to be noted that the expiry of time limit u/s 139(1) is the cutoff date for the previous year in which the amount is withdrawn from the bank. It means that if the date of return u/s 139(1) has not expired ,then that assessment year is not to be taken in account. In this connection, it is to be noted that the correct way to interpret this would be to first consider date of payment i.e. date on which cash withdrawal is proposed to be made and then check for the three preceding assessment years where the due date for filing tax return under section 139(1) has expired. It means that in the year of cash withdrawal from the bank, the income tax return for the preceding previous year shall not be considered till the expiry of time limit u/s 139(1) or such extended time by the Central Board of Direct Taxes.

Example:  For cash withdrawals before 31 July 2021, return filing compliance to be seen for F.Y. 2017-18, 2018-19 & 2019-20. If the assessee has filed any one return out of the three returns, the first proviso to section 194N would not be applicable. It is irrelevant whether the return is filed in time or not. For cash withdrawals from 1 Aug 2021, the return filing status for F.Y. 2018-19, 2019-20 and 2020-21 is to be analyzed. [Note: The above due dates are only for illustrative purpose and actual extended dates are not considered]

Now a question arises that proviso uses the words ‘for which the time limit of filing return of income under sub-section (1) of section 139 has expired’. Whether these words require that only Return of Income filed under section 139(1) shall be considered and not Return of Income filed under section 139(4)? The answer to that is No. This is for the reason that the section nowhere states that the Return of Income for the previous years is to be filed under 139(1) of the Act. In this context, it is to be noted that the phrase ‘for which the time limit of filing return of income under sub-section (1) of section 139 has expired’ is used to determine the three preceding previous years which should be considered to examine the Return filing status. The Act does not cast any obligation regarding the return to be filed before the due date u/s 139(1). Hence, return filed u/s 139(4) shall also be considered for the purpose of provision of sec 194N. Suppose for the A.Y. 2021-22, the time to file the return u/s 139(1) is 30 September 2021. A person filed return on 15 October 2021. The return filed after the due date shall also be considered. The returns for preceding previous years which have been filed u/s 139(4) will also be considered for the purposes of Sec 194N.

Aggregate amount of cash withdrawal If the recipient has FILED return of income for ANY of the 3 previous years If the recipient has NOT 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%

Illustration: Mr. Dheeraj has made the following withdrawals during the financial year 2021-22 He has not furnished his return of income for the previous year-2017-18, 2018- 19, 2019-20 and the due date for filing of return is already expired.

Date Amount of Withdrawal Aggregate amount withdrawn Rate Computation Tax to be deducted
10/04/2021 18 Lakhs 18 Lakhs
20/05/2021 32 Lakhs 50 Lakhs 2% (50-20)*2% 60,000
25/05/2021 25 Lakhs 75 Lakhs 2% 25*2% 50,000
31/05/2021 30 Lakhs 105 Lakhs 2% and 5% (25*2%) + (5*5%) 75,000
25/06/2021 25 Lakhs 130 Lakhs 5% (25*5%) 1,25,000

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

6. How 194N should be applied in case of cash withdrawals involving joint accounts?

This is a grey area where there could be multiple view-points. Let’s consider an example: Husband and wife has individual accounts in a Bank. They also have a joint account in the same bank. Let’s say they have withdrawn upto 92 lakhs from their individual accounts in cash. Now, the husband intends to withdraw Rs. 11 lakhs from their joint account in cash. In this case, one might argue that only 50% of cash withdrawal should be attributed towards husband and TDS may not be required, but this may not be appropriate. Whether Rs. 11 lakhs cash withdrawal is made by husband or wife, the limit should be treated as breached. This is so because both persons (in this case) are responsible for the operation of the account and qua each recipient the limit is reckoned from all accounts maintained in the bank. Even the banking software must be attuned to detect cash withdrawals breaching the specified threshold by duly considering cash withdrawals even in the joint accounts.

7. 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.

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

Date of cash withdrawn Cash withdrawn from saving account Cash withdrawn from current account
01-04-2020 20,00,000 20,00,000
05-07-2020 5,00,000 10,00,000
31-08-2020 4,00,000 25,00,000
01-09-2020 50,00,000 45,00,000
01-03-2021 65,00,000 20,00,000
Total

 

1,44,00,000 1,20,00,000
Tax to  be deducted 328000{ (1,44,00,000+1,20,00,000-10000000)*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.

9. 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
01.07.2020 Delhi Branch ₹70Lakhs
01.10.2020 Kolkata Branch ₹80Lakhs
01.12.2020 Chandigarh Branch ₹90Lakhs

> In this case the bank shall deduct TDS on 01.10.2020 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 01.12.2020 at the rate of 2% on ₹90,00,000/- i.e.₹1,80,000/- from the payment of ₹90,00,000/-.

10. 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
01.07.2020 HDFC BANK ₹70Lakhs
01.08.2020 SBI BANK ₹70Lakhs
01.12.2020 BANK OF INDIA ₹70Lakhs

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

11. Whether TDS is applicable for cash withdrawals made by Charitable Institutions, Clubs, AOPs, Trusts, Resident Welfare Associations, etc. from its bank accounts?

If cash withdrawals exceed the prescribed threshold, it is applicable in case of all persons in general. However, exceptions are clearly defined in the third proviso. TDS is not applicable in case of the Government, Co-operative society engaged in banking business, business correspondent or ATM operator of a banking company or co-operative society engaged in carrying on the business of banking and other notified persons. This means 194N is applicable in all other cases including Charitable Institutions, Clubs, AOPs, Trusts, Resident Welfare Associations, etc

Summary Table

194N Payment of certain amounts in cash
S NO. PARTICULARS  

Description

1. Payer Banking Company, Co-op. Society {in Banking Bus.} or P.O.
2. Payee Any Person {includes Non-Resident also}
3. Type of Payment Cash withdrawn from one or more accounts maintained
4. Time of Deduction Payment of cash
5. TDS Rate 2 %
6. Limit > 1,00,00,000 {1 Crore}
7. Effective Date w.e.f. – 01.09.2019

____

Recipient who has not filed R.O.I. for all of the 3 AY’s relevant to 3 PY’s, for which the time limit to file R.O.I. u/s. 139(1) has expired, immediately preceding the PY in which cash is withdrawn. The provisions will be modified as below –
Limit > 20,00,000 { 20 Lakhs}
TDS Rates Aggregate Withdrawal Amount in PY TDS Rate
Upto 20,00,000 NIL
> 20,00,000 and < 1,00,00,000 2%
> 1,00,00,000 5%
Effective from On or after 01.07.2020

Points to be noted

Tax deducted u/s 194N is not considered as deemed receipt of income.

Points which needs clarification by CBDT

1) Is TDS deductible on amount withdrawn in excess of 1 crore or on the entire amount if the withdrawals exceed 1 crore?

Substituted provisions by the Act No. 12 of 2020, w.e.f. 1-7-2020.

Payment of certain amounts in cash.

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, of sum exceeding one crore rupees, as income-tax:

Prior to its substitution, section 194N read as under :

“194N. Payment of certain amounts in cash.—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 shall, at the time of payment of such sum, deduct an amount equal to two per cent of sum exceeding one crore rupees, as income-tax:

Opinion: from the reading of the aforesaid provisions we see that the words “ of the sum exceeding one crore rupees” is missing in the new substituted law, which may lead to the interpretation that the TDs will be deductible on the entire amount if it exceeds 1 crore. For example if amount withdrawn is 1.20 crore then it could imply that TDS is deductible on 1.20 crore. However after discussion with many leading Bankers I came to the understanding that practically even now the TDS is being deducted only on 20 lacs. It remains to be seen of the Income Tax department takes a different view.

2) Is Sec 194N applicable to cash withdrawal only through self cheque or under bearer cheque as well?

A simple reading of the Act may lead to a conclusion that Sec 194N The payment made by any payer from the accounts maintained by the taxpayer will only attract TDS under Section 194N. For instance, if a bank makes a cash payment of more than Rs 1 crore in an FY to its account holder (i.e any taxpayer) from the account maintained by him, then the bank will have to deduct TDS. But, if the taxpayer gives a bearer cheque (uncrossed) in the name of a person, say Mr A, and he withdraws cash from the individual’s account, then will the TDS will not be deducted. From practical understanding and reading the intention of legislature it seems that any withdrawal from the account by the holder or anyone else will be liable for TDS u/s 194N

This is another debatable area. If one were to consider the intention behind the introduction of section 194N, (promoting digital economy and discouraging cash transactions) then TDS must also be applied on cash withdrawals by use of bearer cheques provided it breaches the threshold. However, the fundamental questions is – whether issue of bearer cheque is same as Cash withdrawal?

As the name itself suggests a bearer cheque is payable to the bearer of the cheque. A bearer could be any person other than the holder of the account.

A ‘cheque’ is defined under the Negotiable Instruments Act, as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. The fact that an instrument in writing separately recognized as ‘cheque’ is employed to direct the banker to disburse the amount, it must be treated differently than a mere cash withdrawal or a self-cheque.

Closer examination of the provisions of section 194N reveals that the focus is not on the type of instrument used to withdraw the funds, the emphasis is on whether cash is paid out of the account held by the person or not. Although withdrawal by bearer cheque is not same as cash withdrawal simpliciter, it culminates in payment of cash by the banker from the account maintained by the account holder. TDS is on “aggregate of sums, in cash, in excess of one crore rupees”. There is no distinction based on the instrument employed for withdrawal. It is concluded that TDS is applicable on issue of bearer cheques as well.

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 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.

(Republished with amendments)

Read Also:-

SECTION TAXGURU LINKS
192 Section 192 TDS on Salary- Analysis
192A Section 192A | TDS on Payment of Accumulated balance due to an Employee
193 Section 193 TDS from Interest on Securities – Analysis
194 Section 194 TDS on payment of dividend
194A Section 194A TDS on Interest (other than Interest on Securities)
194B Section 194B TDS on winnings from Lottery, Game Shows & Puzzle etc
194BB Section 194BB TDS on Winning from Horse Races
194C Section 194C TDS on Payment to Contractor
194D Section 194D TDS on Insurance Commission- Analysis
194DA Section 194DA TDS on Payment in respect of Life Insurance Policy
194E Section 194E TDS on Payments to Non-Resident Sportsmen or Sports Association
194EE Section 194EE TDS on Payments in respect of Deposit under NSS
194F Section 194F TDS on Payments on account of repurchase of units by Mutual Fund or UTI
194G Section 194G TDS on Commission on Sale of Lottery Tickets- Analysis
194H Section 194H TDS on Commission & Brokerage- Analysis
194I Section 194I TDS on Rent – Analysis
194-IA Section 194IA TDS on Purchase of Immovable Property
194-IB Section 194IB TDS on Rent of Property
194-IC Section 194IC TDS on Payment Made Under Specified Agreement
194J Section 194J TDS on Professional or Technical Fees
194K Section 194K TDS on Income In Respect of Units of Mutual Fund
194-LA Section 194LA TDS on Payments of Compensation on Acquisition of certain Immovable Property
194-LB Section 194LB TDS on Income by way of Interest from Infrastructure Debt Fund 
194-LBA Section 194LBA TDS on Certain Income from Units of a Business Trust
194-LBB Section 194LBB TDS on Income in Respect of Units of Investment Fund
194-LBC Section 194LBC TDS on Income in Respect of Investment in Securitization Trust
194-LC Section 194LC | TDS on Interest Income from Indian Company or Business trust
194-LD Section 194LD TDS on Interest Income on certain Bonds/Government Securities
194M Section 194M TDS on payments of certain Sums by Individual & HUF
194N Section 194N TDS on cash withdrawal from banks/post offices
194O Section 194O TDS on E-commerce Operator- Analysis
194P Section 194P Deduction of tax in case of specified senior citizen
194Q Section 194Q Deduction of tax at source on payment of certain sum for purchase of goods
195 Section 195 TDS on Non-Resident Payments
195A Section 195A Income Payable ‘Net of Tax’
196B Section 196B TDS on long term capital gains from units referred to in section 115AB
196C Section 196C TDS on Income from foreign currency bonds or GDRs
196D Section 196D TDS on Income of foreign institutional investors from securities
197 Section 197 Certificate For TDS Deduction at Lower Rate
197A Section 197A – No TDS Deduction – Form 15G & Form 15H
198 Section 198 Tax Deducted at Source shall be deemed to be income received
200 (1) & (2) Section 200(1) & (2) Time Limit for Deposit of Tax Deducted at Source
200 (3) Section 200(3) Forms & Time Limit for Submitting Quarterly TDS Returns
203 Section 203 TDS Certificate
200A Section 200A Processing of Statements of Tax Deducted at Source
201 Section 201 Consequences of Non-Compliance to TDS
203A Section 203A Tax Deduction And Collection Account Number
206AA Section 206AA Mandatory Requirement of Furnishing PAN-TDS
206AB &
206CCA
Section 206AB & 206CCA Higher Rate of TDS/TCS in Case of Non-Filers of Return
206C Section 206C Tax Collection at Source (TCS)
206CC Section 206CC Mandatory Requirement of Furnishing PAN
40(a)(i) Disallowance for Non deduction of Tax at Source

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2 Comments

  1. Umesh Varma says:

    Sir, Is Section 194N of the Income Tax Act, 1961 is applicable to a Housing Society Ltd registered under West Bengal Society Registration Act.?

  2. thiruppathi says:

    Dear sir

    2017,2018,2019 income tax return file done.in oct2021 I withdraw the money 24laks on scb bank by using cheque book.but I deducited TDS such amount RS 18618.00.how to reverse the amount?plz give solution. my number 9790151214

    thank u
    regards
    thiruppathi

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