What is Section 194N?
TDS on Cash Withdrawal u/s Section 194N is applicable when the aggregate amount of cash withdrawals are more than Rs 1 crore during a financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn from a particular payer in a financial year. The Government introduce Section 194N in the Union Budget 2019 in order to discourage cash transactions in the country and promote the digital economy.
Who shall deduct TDS on Cash Withdrawal?
The following payers are shall deduct TDS under this section:
- Any bank (private or public sector)
- A co-operative bank
- A post office
The provisions under section 194N are not applicable in case payment to the following person:
- Central or State GovernmentBanking Company
- Co-operative Banks
- Business correspondents authorised by RBI
- White label ATM operators
- Any other person notified by goverment
Rate of TDS u/s 194N
The rate of TDS on cash withdrawal u/s 194N is 2% on the amount exceeding Rs. 1 crore. TDS will be deducted when the payment would be made by the Bank, Co-operative society, or Post Office i.e. TDS will be deducted at the time of making the payment. The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not a taxpayer’s individual account.
For example if cash withdrawn by Mr. Arjun is Rs. 1cr then in that case TDS will not be deducted. Since the amount does not exceed Rs 1cr.
Here is a detail example to help you understand the provision:
XYZ ltd has made the following cash withdrawals for FY 2019-20
- 85 Lakhs on 25th August 2019
- 30 Lakhs on 10th September 2019
There will be two separate calculations:
- The threshold limit of Rs. 1 crore
Aggregate cash withdrawal in a financial year
85 lakhs + 30 lakhs = 1.15 crore
Therefore Section 194N will be applicable in this case.
2. Calculation of TDS
The tax deduction would be made for any cash withdrawal exceeding 1 crore after 01 September, 2019.
|Cash Withdrawal on 25th August||85 Lakhs|
|Cash Withdrawal on 10th September||30 Lakhs|
|Total Cash withdrawal in FY 2019-20||1.15 crore|
|Less: Threshold Limit of 1 crore||(1 crore)|
|Amount eligible for TDS u/s 194N||0.15 crore|
|TDS @ 2%||30,000|
Deductors of tax shall quarterly issue a TDS certificate to the deductee in Form 16A for tax deducted at source other than salary. The Deductor can download Form 16A from the account on TRACES. Using Form 16A, the deductee can claim credit of the TDS while filing Income Tax Return.
The Deductor liable to deduct tax under section 194N of the Income Tax Act shall file quarterly return in Form 26Q. The deductor, after filing the Form, should provide Form 16A to the deductee.
The limit of Rs. 1cr is overall limit for all accounts (like saving A/c, current A/c etc) maintained by a person with one bank. The limit is per bank rather than per account.
Form 26AS is a statement for such income on which tax is deducted and deposited to government by deductor. However, cash withdrawal cannot be considered as an income. Therefore, the government has simultaneously amended section 198 of the Income Tax Act wherein it is clarified that cash withdrawal shall not be deemed to be the income of the person.