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Section-194N-TDS-on-cash-withdrawals

 

Section 194N TDS on cash withdrawals

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Introduction-

Union Budget 2019, the Finance Minister has introduced new Section 194N which relates to deduct TDS on cash withdrawal in excess of 1 crore @ 2% by a banking company or cooperative bank or post office. This amendment will take effect from 1st September, 2019.

In order to further discourage cash transactions and move towards less cash economy, it is proposed to insert a new section 194N in the Act to provide for levy of TDS at the rate of two per cent on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

It is proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision.

It is proposed to empower the Central Government to exempt other recipients, through a notification in the official Gazette in consultation with the Reserve Bank of India.

   
Rate of TDS-

TDS will be deducted @ 2% if the amount of cash withdrawan exceeds Rs. 1 Crore Amendment of Section 194N will be effective w.e.f. 01 July 2020 i.e. TDS will be deducted @ 2%, if the withdrawer has not filed his tax return for three years and withdrawal during the year exceeds Rs 20 lakhs but less than Rs 1 crore and if the amount exceeds Rs. 1 crore then the rate of TDS will be 5%.


Example 1 (F.Y. 2020-21)-

If Mr. X has made cash withdrawal from his account of Rs 25,00,000/- during the financial year 2020-21. Whether provision of section 194N is applicable or not , if applicable what will be the amount of TDS?

Answer-

The cash withdrawal amount has crossed to Rs. 20 lakh during the year, so provisions of section 194N is applicable. The amount of TDS will be deducted i.e. 2% above the amount of Rs. 20 lakh, so the amount of TDS is 10,000 (2% of Rs. 5,00,000)

 

Example 2 (F.Y. 2020-21)-

If Mr. X has made cash withdrawal of Rs. 22,00,000 from his one account and Rs. 1,15,00,000 from his anonther account during the financial year 2020-21. Whether provision of section 194N is applicable or not , if applicable what will be the amount of TDS?

Answer-

The cash withdrawan amount during the year has crossed Rs. 1 crore. The amount of TDS will be deducted i.e. 5% above the amount of Rs. 1 crore, so the amount of TDS is 1,85,000 (5% of Rs. 37,00,000)

   

Example-3 (F.Y. 2019-20)

If Mr. X has made an aggregate withdrawal of Rs 98,00,000/- up to 25.03.2020 and again he present another cheque for payment of Rs 2,50,000 on 28.03.2020. Whether provision of section 194N is applicable or not , if applicable what will be the amount of TDS?

Answer-

The aggregate amount crossed to Rs. 1 Crore during the year, so provisions of section 194N is applicable. The amount of TDS will be deducted i.e. 2% above the amount of Rs. 1 crore, so the amount of TDS is 1,000 (2% of Rs. 50,000). The bank will pay the net amount of Rs. 2,49,000 [Rs. 2,50,000 (Cheque Amount) - 1,000(TDS amount)] to Mr. X.

   
Extract of Section 194N
Applicability of Section 194N-

Every person, being,––

(i) a banking company to which the Banking Regulation Act, 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,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to 2% of sum exceeding one crore rupees, as income-tax:

   
Non applicability of Section 194N –

Provided that nothing contained in this sub-section shall apply to any payment made to,––

(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;

(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;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.’

 



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