TDS: Section 194N Payment of certain amounts in cash

Section 194N Payment of certain amounts in cash.

As per section 194N of IT Act, Every person being the bank, Cooperative society engaged in banking business and post office is required to deduct TDS at 2% when they make cash payment of Exceeding Rs. 1 Crore to any person during the previous year.

However the amendment in section 194N has been made from 1^st July, 2020, if the recipient of cash payment is not regular return filer (ITR not Filed for 3 AY) then Every person being the bank, Cooperative society engaged in banking business and post office is required to deduct TDS at 2% when they make cash payment of Exceeding Rs.20 Lakh to any person during the previous year & 5% when they make cash payment of Exceeding Rs.1 Crore to any person during the previous year.

Section 194N:- FAQ

1. Is TDS applicable on cash withdrawal?

Yes, TDS is applicable on cash withdrawals w.e.f 1^st September 2019 in case cash withdrawal exceeds defined threshold limit as mentioned under the law. TDS provision will be applicable even if you do not have any taxable income in that financial year. However, certain changes w.r.t. rate of the said TDS have been made in Section 194N w.e.f. 1^st July 2020.

2. What is the rate at which tax will be deducted and from which date TDS on cash withdrawal is applicable?

As per the provisions of Section 194N as applicable from 1^st September 2019 up till 30^th June 2020, TDS @2% is/was applicable if the total cash withdrawals exceed Rs. 1 crore during the previous year. However, w.e.f. 1^st July 2020 for the purpose of TDS on cash withdrawals, please note the following amendments:

a) Case wherein you have filed Income Tax Returns (“ITR’s”) for 3 previous years (i.e. ITR compliant): If you have filed ITRs of 3 previous years preceding the previous year in which cash is withdrawn, for which the time limit of filing under section 139(1) has expired, then TDS will be applicable @2% on cash withdrawal exceeding Rs. 1 crore during the Financial Year.

b) Case wherein you have not filed Income Tax Returns (“ITR’s”) for 3 previous years (i.e. ITR non-compliant): If you have not filed your ITR’s for 3 previous years preceding the previous year in which cash is withdrawn, for which the time limit of filing under section 139(1) has expired, then the following rates of tax deduction shall be applicable w.e.f. 1^stJuly 2020:

• Cash withdrawal exceeding Rs. 20 Lakhs but up to Rs. 1 Crore during the Financial Year: TDS @ 2%
• Cash withdrawal exceeding Rs. 1 Crore during the Financial Year: TDS @ 5%

Refer below illustration:

a. If you have filed ITR’s for the preceding 3 previous years and withdrawn cash amount of INR 1.2 crore in FY 2020-21 then TDS of INR 40,000 [2%*(1.2 crore – 1 crore)] will be deducted from your account.

b. If you have not filed ITR’s for the preceding 3 previous years and withdrawn cash amount of INR 1.2 crore between the period 01.07.2020 to 31.03.2021 then TDS of INR 2,60,000 [{2%*80 Lakhs (1 crore – 20 lakh)} + {5%*(1.2crore – 1 crore)}] will be deducted from your account.

3. Am I required to submit any documentary proof with the Bank evidencing that I am ITR compliant to claim higher threshold limit of Rs. 1 crore for TDS on cash withdrawal(s)?

Yes, you are required to submit requisite documents including copies of Income Tax Return filing acknowledgement of previous years with bank branch evidencing that you are ITR compliant. Such documents are required to be submitted with the Bank branch at the time of account opening and at the beginning of each subsequent Financial Year.

4. How threshold limit of Rs. 20 lakh or 1 Crore (as applicable) will be computed if cash withdrawn by me is from different branches of same Bank?

The threshold limit of Rs. 20 lakh or 1 Crore (as applicable) is bank-wise and not branch-wise of the Bank. Thus, while computing this limit, entire cash withdrawal from all the branches of Same Bank shall be considered.

5. How threshold limit of Rs. 20 lakh or 1 Crore (as applicable) will be computed for different modes of cash withdrawal?

Threshold limit of Rs. 20 lakh or 1 Crore (as applicable) will be computed by accumulating total cash withdrawal under all modes i.e. TDS will be applicable if cumulative cash withdrawal done through ATM withdrawal, cash withdrawal from all the branches, redemption of Term Deposit in cash etc. exceeds Rs. 20 lakh or 1 Crore during the financial year, as the case may be.

In respect of FY 2020-21, for calculating threshold of Rs. 20 Lakhs, withdrawals made from 1^st April 2020 will be considered. However, TDS will be applicable only on withdrawals made on or after 1^st July 2020.

6.Will cash withdrawal by 3rd party through bearer cheques be considered as cash withdrawal in customer account?

Yes, 3^rd Party cash withdrawal will be considered for TDS deduction. Therefore, if overall cash withdrawn by you, including 3^rd party cash withdrawal through bearer cheque, from one or more bank accounts maintained with AU Bank exceeds Rs. 20 lakhs or 1 crore (as applicable) , then TDS will be withheld on cash withdrawal exceeding Rs. 20 lakhs or Rs. 1 crore (as applicable).

7. Is the limit of Rs. 20 lakhs or Rs. 1 Crore with One Bank includes cash withdrawn by me from any other bank?

No, limit of Rs. 20 lakhs or 1 Crore is applicable at Bank wise separately. If you have withdrawn cash exceeding Rs. 20 lakhs or Rs. 1 Crore from all the accounts maintained with One Bank, then only TDS will be withheld. For instance, if you have filed ITR’s for 3 preceding previous years and total cash withdrawn is Rs. 60 Lakhs from accounts maintained with One Bank and Rs. 60 lakhs from an account or accounts maintained with another bank, then no TDS will be deducted by either of the banks.

8. Which entities are exempted from TDS on cash withdrawal?

In this regard, following entities fall under exemption:

a. Government;

b. any banking company or co-operative society engaged in carrying on the business of banking or a post office;

c. any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking in accordance with the RBI guidelines;

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 authorization issued by the Reserve Bank of India;

e. Such other person(s) as the Central Government may notify in the Official Gazette. Please note that, CBDT has notified following entities as eligible for TDS exemption:

• Commission Agent or trader operating under Agriculture Produce Market Committee and registered under any law relating to Agriculture Produce Market.
• Cash Replenishment Agencies and franchise agents of White Label Automated Teller Machine Operators subject to fulfilment of certain conditions.
• Authorized dealer registered under section 10(1) of Foreign Exchange Management Act, 1999 and its franchise agents and sub-agents.
• Full-Fledged Money Changer licensed by RBI and its franchise agents.

9. Whether I will be able to claim TDS Credit at the time of filing ITR?

Yes, you can claim credit of the amount of tax deducted at source on cash withdrawal(s) at the time of filing ITR on the basis of quarterly TDS certificates.

10. Is it mandatory to provide PAN on cash withdrawal?

If PAN is not available, then TDS will be deducted at the penal rate of 20% on cash withdrawal(s) exceeding Rs. 20 Lakhs or 1 Crore (as applicable).