TDS on Cash Withdrawal – Section 194N

Extract of Section 194N of Income tax Act, 1961 as amended by Finance Act (No. 2) 2019.

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, 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, deducts an amount equal to two per cent of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-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);

 (v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.]

Important interpretations-

  • It is applicable to payments in cash in excess of Rs 1 crore during a previous year ( 1st April to 31st March).
  • TDS under 194N is applicable only if the aggregate of payments including this sum exceeds Rs 1 crore. For example, the aggregate payments made till the payment under consideration was Rs 95,00,000/- and the present payment is Rs 6,00,000. The aggregate payments so made are now Rs 1,01,00,000/- ie have crossed ceiling of Rs 1 crore during the relevant PY. Now TDS is applicable at 2% on Rs 1,00,000 ie Rs 2000 and here the recipient will receive Rs 5,98,000 only instead of Rs 6 lack from the bank though his bank account will be debited by Rs. 6 lack only.
  • The recipient can claim this TDS while filing her ITR at the end of the year against her total tax liability.
  • Ceiling of Rs. 1 crore is per account maintained by the recipient. For ex: If Shikha maintains 3 Saving Bank accounts in 3 banks then she can withdraw total upto Rs 1 crore for her each bank account without applicability of TDS u/s 194N. Somewhere, this provision dilutes the spirit behind the advent of sec 194N.
  • Bank account can be a S.B. A/C, C.C. A/C, C.A. A/C etc.
  • The “recipient” as being mentioned in the section can be an individual/a partnership firm/LLP/a company/BOI/AOP/HUF/Local authority.
  • Persons being kept outside the definition of the recipient by the section should also be kept into mind.

Above TDS provision envisages to promote less cash economy along with widening and deepening the tax base.

So, next time you go to the bank for withdrawing cash from your bank account, keep above provisions into mind.

Author Bio

Qualification: CA in Practice
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Location: Lucknow, Uttar Pradesh, IN
Member Since: 01 Aug 2019 | Total Posts: 2

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11 Comments

  1. Suraj Reddy says:

    Sir 194 N is applicable to inter branch transaction or not ?
    Above points mentioned “Bank account can be a S.B. A/C, C.C. A/C, C.A. A/C etc” . Inter branch transactions are covered .sir please clarify.

  2. Vatsal Patel says:

    Sir m having franchise of vakrangee ltd, we have white label ATM on custodian basis my 1 crorer limit is over so I want to know whether we are assumpted from tds or not if yes pls provide doc of it as HDFC bank is telling tds will cut. Pls clarify

      1. Krishna says:

        Just need more clarity, Sir..
        It is per account in the same bank or per bank account..
        Eg.
        Ram & co may have 3 current accounts with Indian bank at different locations …
        Also Ram & co may have 3 current accounts in Canara bank , LVB , KVB.
        In all If Ram & co has 6 bank accounts what will be the withdrawal ceiling..
        If I have understood right Ram & co can draw Rs.6 crores in each respective account without TDS for all current accounts..
        Kindly assist with your reply..

      2. Krishna says:

        Just need more clarity, Sir..
        It is per account in the same bank or per bank account..
        Eg.
        Ram & co may have 3 current accounts with Indian bank at different locations …
        Also Ram & co may have 3 current accounts in Canara bank , LVB , KVB.
        In all If Ram & co has 6 bank accounts what will be the withdrawal ceiling..
        If I have understood right Ram & co can draw Rs.6 crores in each respective account without TDS for all current accounts..
        Kindly assist with your reply..

    1. koushdasik says:

      “…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…”
      If the recipient’s withdrawal from different accounts maintained with the same Bank(in same branch or multiple branches) exceeds 1 crore, then TDS will be deductible. However, withdrawal exceeding 1 crore from multiple accounts maintained with different Bank will not attract TDS.

  3. GANDHI MOHAN BHARATI says:

    To draw one crore in cash in a year by individual is virtually a nil factor. But legally is it right to tax one’s own money under Income Tax Act, just for withrawing it, when it does not constitute income?

    1. CA Harsh vardhan Pandey says:

      Dear Reader,
      Your views are most welcome. There are various views on the point you have raised. The section is at its nascent stage, it is supposed to evolve over time and incorporate necessary amendments in future.
      I appreciate your response,
      Keep reading !!

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