TDS- Section 194N – Scope & Recent Amendments

Scope of Section 194N of the Income tax Act 1961, and recent amendments to it brought by Finance Act, 2020 and Press release

In the maiden Budget Speech, while presenting the Union Budget 2019, the Finance Minister Nirmala Sitaraman said that in a bid to promote digital payments and to discourage cash payments she proposed to levy TDS of 2% on cash withdrawal exceeding 1 crore in a year from a bank account, post office, cooperative bank.

However, the said section 194N is now amended by Finance Act, 2020 by clause 83A of the Finance Bill, 2020 as passed by the Lok Sabha.

The Scope of TDS on cash withdrawal has been extended. This amendment will be with effect from 01 July 2020.

Amended scope includes:

 Every bank, post office and cooperative society shall deduct TDS:

• In a case where the recipient has filed the returns of Incomefor all the three assessment years relevant to the three previous years @ 2% if the aggregate amount of cash withdrawals during the previous year is exceeding INR 1 crore,
• In a case where the recipient has not filed the returns of Income for all 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,

a) 2% if the aggregate amount of cash withdrawals during the previous year exceeds INR 20 lakhs,

b) 5% if the aggregate amount of cash withdrawals during the previous year exceeds INR 1 crore.

Press Release DATED 12^th JUNE 2020 states:

The Income Tax Department has facilitated a new functionality for Banks and Post offices

through which they can ascertain the TDS applicability rates on cash withdrawal. So far, more than 53,000 verification requests have been executed successfully on this facility.

CBDT in a Press release DATED 12^th June 2020, said that this functionality available as “Verification of applicability u/s 194N” on www.incometaxindiaefiling.gov.in since 1 July 2020, is also made available to the Banks through web-services so that the entire process can be automated and be linked to the Bank’s internal core banking solution.

This automation facilitates easy compliance for Banks and post offices.

Threshold limits and Rates applicable by the amendment at glance:

TDS will be deducted by:

Every person, being

• Banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution
• Co-operative society engaged in carrying on the business of banking; or
• Post office, who is responsible for paying any sum,

being the amount or the aggregate of amounts, as the case may be, in cash exceeding the specified amount 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 of certain % of such sum, as income tax.

Applicability of the section:

The section will apply to withdrawals made by following taxpayers:

• An Individual
• A Hindu Undivided Family (HUF)
• A Company
• A partnership firm or an LLP
• A local authority
• An Association of Person (AOPs) or Body of Individuals (BOIs)

Non Applicability of the section:

Sec 194N will not apply to withdrawals made by following taxpayers:-

• The Government,
• any banking company or co-operative society engaged in carrying on the business of banking or a post office,
• Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking,
• Any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking,
• Farmers – Central Government specifies the commission agent or trader, operating under Agriculture Produce Market Committee (APMC),
• Authorised dealer and its franchise agent and sub-agent; and Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent,
• Provided also that the 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.