TDS under Section 194N: An Insight

Bare Act, FAQs issued by Income Tax Department and Exemption Notifications are to be read collectively for an insight into Section 194N.

Applicability of TDS under Section 194N

Whenever any Banking Company (within the meaning of Banking Regulation Act, 1949), Cooperative Bank or a post office pays any amount or aggregate of amount as the case may be, in cash exceeding One crore to any person from one or more accounts during previous year, they are liable to deduct TDS equal to 2% of such sum.

However if that person has not filed Income Tax Return for all three immediately preceding previous years for which time limit U/S 139 (1) has expired TDS shall be deducted if amount paid or aggregate of amount paid exceeds 20 Lacs rupees during the previous year. In that case TDS at the rate 2 % shall be deducted for amount upto One crore and 5% beyond that limit.

Point at which TDS shall be deducted under section 194N

 The TDS will be deducted when the cash withdrawal by a person from his account/accounts exceeds 20 Lacs or 1 Crore as the case may be.

Example : Mr. ABC has a current account and saving account in a Bank. During FY 2021-22, he withdraw cash of Rs. 60 lacs from saving account on 30.12.2021 and 60 Lacs from current account on 28.02.2022. Mr. ABC is regular in ITR filing:

Mr ABC has never filed a return 

Cases where no Tax is to be deducted at source under section 194N:

1. No Tax Under Section 194 N is to be deducted at Source if any sum or aggregate of sum paid in cash does not exceed 1 crore (under normal circumstances) or 20 Lacs ( If no return filed during all of the previous 3 years)).   

2. In case payment is made to following :-

a) The Government

b) Any Bank, Cooperative Bank or Post Office

c) Any Business Correspondent of a banking company or a Cooperative Bank

d) 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)

e) Central Government may specify in consultation with the Reserve Bank of India, 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 notification.

Following notifications have been issued in this regard:

Notification No. 68/2019, dated 18.09.2019 : The Central Government after consultation with the Reserve Bank of India, specified Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) maintaining a separate bank account from which withdrawal is made only for the purposes of replenishing cash in the Automated Teller Machines (ATM’s) operated by such WLATMO’s and the WLATMO have furnished a certificate every month to the bank certifying that the bank account of the CRA’s and the franchise agents of the WLATMO’s have been examined and the amounts being withdrawn from their bank accounts has been reconciled with the amount of cash deposited in the ATM’s of the WLATMO’s.

White Label ATMs (WLA) : ATMs set up, owned and operated by non-banks are called WLAs. Non-bank ATM operators are authorised under the Payment & Settlement Systems Act, 2007 by the Reserve Bank of India (RBI).

Notification No. 70/2019 dated 20.09.2019: The Central Government after consultation with the Reserve Bank of India, has specified the commission agent or trader, operating under Agriculture Produce Market Committee (APMC), and registered under any Law relating to Agriculture Produce Market of the concerned State, who has intimated to the banking company or co-operative society or post office his account number through which he wishes to withdraw cash in excess of rupees one crore in the previous year along with his Permanent Account Number (PAN) and the details of the previous year and has certified to the banking company or co-operative society or post office that the withdrawal of cash from the account in excess of rupees one crore during the previous year is for the purpose of making payments to the farmers on account of purchase of agriculture produce and the banking company or co-operative society or post office has ensured that the PAN quoted is correct and the commission agent or trader is registered with the APMC, and for this purpose necessary evidences have been collected and placed on record.

Notification No. 80/2019 dated 15.10.2019 : The Central Government, after consultation with the Reserve Bank of India (RBI), specified,-

(a) the authorised dealer and its franchise agent and sub-agent; and

(b) Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent; maintaining a separate bank account from which withdrawal is made only for the purposes of,-

(i) purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by Reserve Bank of India; or

(ii) disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MTSS) of the Reserve Bank of India;

and a certificate is furnished by the authorised dealers and their franchise agent and sub-agent, and the Full Fledged Money Changers (FFMC) and their franchise agent to the bank that withdrawal is only for the purposes specified above and the directions or guidelines issued by the Reserve Bank of India have been adhered to.

Explanation – For the purposes of this notification, “authorised dealer” means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999).