prpri Stay to petitioner to not to deduct TDS u/s 194N till 30.09.2021 Stay to petitioner to not to deduct TDS u/s 194N till 30.09.2021

The Hon’ble Calcutta High Court in the matter Apeejay Tea Ltd. Anr. Vs Union of India & Ors. (Calcutta High Court) has given an interim order dated 08th July, 2021 regarding restraining the respondent’s authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30th September, 2021.

It is submitted that in Writ Petition No. 10856 of 2021, petitioner has challenged the constitutional validity and legality of Section 194N of the Income Tax Act, 1961 which mandates the deduction of tax at source at the rate of 2% on cash withdrawals from, inter alia, a banking company exceeding Rs. 1 crore in a financial year and the said Section was inserted by the Finance Act, 2019 and became effective from 1st September, 2019 and has been substituted by the Finance Act, 2020.

Petitioner submitted that Section 194N of the said Act is beyond the legislative competence of the Parliament and Entry 82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for imposition, collection and levy of tax on “income” and the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution.

Petitioner has also relied on several unreported decisions of the Hon’ble Kerala High Court involving the same issue and one of which is order dated 13th August, 2020 passed in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP(C ) No. 1658 of 2020 where Hon’ble Court has admitted the writ petition on this issue and has granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961.


Rate of TDS u/s 194N

Aggregate cash withdrawal in a financial year Rate of TDS if ITR of last 3 years filed Rate of TDS if ITR of last 3 years not filed
Up to Rs. 20 lakhs NIL NIL
Rs. 20 Lakhs to Rs. 1 crore NIL 2%
In excess of Rs. 1 crore 2% 5%

Some important points related to TDS on cash withdrawal

1. This limit is applicable to individual Bank (private or public both), co-operative Bank and Post Office. For instance, if you have two banks’ accounts then you can withdraw Rs. 20 lakhs/Rs. 1 crore from each Bank.

2. This section is applicable to all types of accounts including Saving/Current/Cash Credit Limit/Overdraft.

3. TDS shall be deducted on amount exceeding Rs. 20 lakhs/Rs. 1 crore.

4. The amount of TDS deducted shall be refunded or used against your tax liability at the time of filing of ITR.

5. The conditions for filing ITR is for all last 3 years, if you have filed ITR for only 1 or 2 years, then rate of TDS shall be 2% up to Rs. 1 crore and 5% for amount exceeding Rs. 1 crore respectively.

Remark: The Central Government may specify in consultation with RBI, 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 notifications.


Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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July 2021