TDS on Cash Withdrawal from Bank-Section 194N

1. INTRODUCTION

The Govt. in Budget 2019 introduced section 194N in Income-tax Act, 1961 to promote digital payments and discourage the practice of making business payments in cash. In Budget 2020 the scope and applicability of this section has been increased to discourage delay in filing of return of income. The Govt. wants people to file return and that to in time.

2. REQUIREMENT TO DEDUCT TDS

Banks and Post Office are required to deduct TDS @ 2% if any person withdraws cash above 1 Crore. In case return of income for last 3 years has not been filed or is filed late then banks are required to deduct TDS @ 2% if cash withdrawal is made above 20 lakhs to 1 crore and TDS @5% if cash is withdrawn above 1 crore. The same can be best understood through this table-

3. PERSONS EXCLUDED –If following persons withdraws cash exceeding above-mentioned limits then TDS shall not be deducted-

a) Government

b) Banks

c) Post Offices

d) White Automated Teller Machine Operator- These are non-bank entities who provide ATM facilities to customers of banks in India based on debit/credit cards issued by banks. Keeping the fact in view that banks won’t be able to provide ATM facilities in each and every place, non-bank entities were allowed by RBI to set up White Label ATMs. They are excluded from withdrawing cash exceeding above-mentioned limits.

e) Commission Agents or Traders registered under Agriculture Produce Market Committee (AMPC) who withdraws cash above 1 crores for purpose of making payment to farmers for purchasing agricultural produce.

f) Full Fledged Money Changers who are maintaining separate account from which withdrawal is made only for the purpose of purchase of foreign currency from foreign tourist or non-residents.

4. FAQs-

a) Whether limit is bank wise or branch wise- Bank wise

b) Whether all accounts are included in particular bank- Yes aggregate of amounts withdrawn from all the types of accounts i.e. Savings, Current, Bank OD etc. should not exceed above-mentioned limits.

c) How we will get credit of TDS deducted-Banks/ Post Offices are required to file TDS return and deposit the same to credit of Central Govt. The same will be reflected in Form No. 26AS of the deductee.

d) If cash withdrawn exceeds above limits then on how much amount TDS is to be deducted- Eg: If assesse withdraws cash of Rs.1.25 crores then TDS is to be deducted on 25 lakhs and not on 1.25 lacs on exceeding limit of 1 cr.

OUR COMMENTS-

Govt. wants to encourage digital transactions and slow down cash transactions in business. People with history of cash transactions are taken into consideration with introduction of this section. Also govt. wants to ensure timely filing of income-tax returns. But there are practical issues in compliance of this provision i.e. how banks will ensure compliance of return filing, what happens if assessee is not required to file return of income, what happens if business is not in existence for 3 years, etc. The answers to all this question remains unanswered. The main aim of Govt. is that business entity should perform all its transactions through banking channel so that tax evasion can be reduced and people pay correct taxes.   

The above comments do not constitute professional advice. The Author can be reached at divyaagrawal203@gmail.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant. I also upload educational videos in You tube and name of my channel is FINANCIAL TREE COMPANY. My aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.