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 % |
****
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
Author Bio
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?