SECTION 194N OF INCOME TAX ACT 1961- Payment of certain amounts in cash

Section 194N was introduced by the Government in July 2019 to discourage the cash transactions in the country and promote a digital economy by making tax deducted at source (TDS) at the rate of 2 per cent applicable on cash withdrawals over and above Rs. 1 crore.

This section applies to:

(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

When these person are responsible for paying any sum, being the amount or the aggregate of amounts (TO BE CONSIDERED IN AGGREGATE), 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.

[IMPORTANT POINTS TO NOTE ARE:

  • AGGREGATE AMOUNT IS TO BE CONSIDERED
  • PAYMENTS MADE IN CASH ARE TO BE CONSIDERED
  • PAYMENT FROM ALL THE ACCOUNTS OF THE RECIPIENT MUST BE CONSIDERED
  • DEDUCTION MUST BE MADE AT THE TIME OF PAYMENT

HOWEVER THE PROVISIONS OF THIS SECTION DO NOT APPLY WHEN THE PAYMENTS ARE MADE TO THE FOLLOWING PERSONS:

(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)

FURTHER ADDITION WAS MADE TO THIS SECTION VIDE FINANCE ACT 2020 AND THESE ARE APPLICABLE W.E.F. 1ST JULY 2020

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.

(i.e. FOR PREVIOUS YEAR 2020-21 INCOME TAX RETURN OF PREVIOUS YEAR 2016-17; 2017-18 and 2018-19 MUST BE CONSIDERED)

THE LIMIT FOR AGGREGATE AMOUNT IN CASH HAVE BEEN REDUCED TO TWENTY LAKH RUPEES DURING THE PREVIOUS YEAR; and

The rate of deduction shall be—

(a) 2 per cent of the sum where aggregate of amounts being paid in cash exceeds 20 lakh rupees during the previous year

(b) 5 per cent of the sum where aggregate of amounts being paid in cash exceeds 1 crore rupees during the previous year:

SUMMARY:

RATE OF TDS U/S 194N:

FOR ALL OF THE THREE PREVIOUS ASSESSMENT YEARS
Income Tax Return is filed Income Tax Return is not filed
Withdrawal Rs 0 – Rs 20 lacs NIL NIL
Withdrawal Exceeding Rs 20 lacs but Upto Rs 1 Crore NIL 2 %
Withdrawal Above Rs 1 Crore 2 % 5 %

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Author Bio

Qualification: CA in Practice
Company: Sumeet Kankani & Associates
Location: Siliguri, West Bengal, IN
Member Since: 03 Jun 2019 | Total Posts: 1

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2 Comments

  1. GANDHI MOHAN BHARATI says:

    Banks are asking for ITR. The Act only states that one needs to have filed ITR for 3 previous consecutive years. The Government will do well to facilitate the Banks to verify about whether ITRs were filed or not from CPC or in the alternative accept the acknowledgement of CPC. Why entire ITR are needed by the Banks? Is it not violating my privacy?

    1. kankanisumeet@gmail.com says:

      Dear Gandhi Mohan Ji,

      As per my understanding of the provision, the bank must not ask for complete ITR, only Acknowledgement of Income Tax Return (i.e. ITR V) must be sufficient.

      Also there are options on incometaxindiaefiling.gov.in for the banks and assessee
      One is to check the ITR Status using Acknowledgement Number and
      Second is for verification of applicability of Section 194N.

      You can ask the bank to use them.

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