While introducing the new applicability of TDS levy on cash withdrawals under newly inserted Section 194N, the Finance Minister Shri Nirmala Sitharam in her budget speech elaborated that the Government has taken a number of initiatives for promotion of the digital payments and less cash economy. She stated that to promote the digital payment and to discourage the practice of making business payments in cash, it is hereby proposed to levy TDS of 2% on cash withdrawal exceeding INR 1 Crore in a year from the bank account.

Accordingly, moving one step frontward towards cash less economy and to discourage the cash transaction, the Union Budget 2019 proposed insertion of new section 194N into the Income Tax Act, 1961. Recently on 1st August 2019, the Finance Bill 2019 has got President’s assent resulting the proposed insertion to be a law.

In the present article, we would try to understand the categories of a person liable to deduct TDS under section 194N, Applicability of TDS, Rate at which TDS is to be deducted and exemptions available under section 194N,

Category of the person liable to deduct TDS under section 194N

Following categories of persons are liable to deduct TDS –

1. A banking company (to which the Banking Regulation Act, 1949 is applicable and also includes any bank / banking institution referred in section 51 of the Banking Regulation Act, 1949); and

2. A co-operative society carrying on the banking business; and

3. A post office.

Applicability of TDS under Section 194N

The above referred categories of persons are liable to deduct TDS under section 194N when they are paying any sum in cash in excess of INR 1 Crore during the previous year to any person.

The rate at which TDS is to be deducted under section 194N

TDS is deductible at the rate of 2% at the time of payment of the sum to the Deductee.

List of Exemptions available under section 194N

Payment made to below categories of person is exempted –

1. The Government; and

2. Any Banking Company; and

3. A co-operative society engaged in carrying on the banking business; and

4. A post office; and

5. Any business correspondent of the banking company / co-operative society engaged in carrying on the banking business; and

6. Any white label automated teller machine (ATM) operator of a banking company / co-operative society engaged in carrying on the banking business.

Effective date of Applicability of Section 194N

Provisions of newly inserted section 194N of the Income Tax Act, 1961 shall be effective from 1st September 2019.

Also Read-

TCS – Tax Collection at Source – A Complete Guide
TDS Rate Chart for Financial Year 2019-2020
Section 192 – TDS on Salary
Section 192A – TDS on Premature withdrawal from EPF
Section 193: TDS on Interest on Securities
Section 194 – TDS on dividend
Section 194A: TDS on interest other than interest on securities
Section 194B and Section 194BB – TDS
Section 194C – TDS on Contractors
Section 194D – TDS on insurance commission
Section 194DA – TDS in respect of Life Insurance Policy
Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association
TDS under Section 194EE and Section 194F
Section 194G TDS on Commission on Sale of Lottery Tickets
Section 194H – TDS on Commission or Brokerage
Section 194I of Income Tax Act, 1961 – TDS on Rent
Section 194IA TDS on transfer of immovable property
Section 194IB – TDS on Rent paid by Individual / HUF
Section 194LA: Payment of Compensation on acquisition of certain immovable property
TDS under Section 194LB, 194LBA, 194LBB and 194LBC
Section 194LC: TDS on income by way of interest from an Indian Company or a business trust
Section 194LD TDS on income by way of interest on certain bonds and Government Securities
Section 194J TDS on Fees for Professional or Technical Services
Section 194M: TDS on Payment of certain sum by certain Individual / HUF
Section 195 TDS on payment of any other sum to a non-resident

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November 2020