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Finance Minister Nirmala Sitharaman presented her first Union Budget on 5th July 2019 and added new Section 194N in the present Income Tax Act, 1961. The Union Budget of 2019 has introduced various schemes and benefits for individuals such as 80EEA and 80EEB. Similarly, in order to encourage digital payments and discourage transactions carried in cash, Union Budget 2019 has introduced Section 194N for deducting tax at source (TDS) on cash withdrawal more than INR 1 Crore. The provisions of Section 194N will be applicable to the payments made on or after 1st September 2019.
Table of Contents
Section 194N of Income Tax Act, 1961 is applicable on every cash withdrawal made in a financial year exceeding INR 1 Crore. This section is applicable on all the sum of money or aggregate of sums withdrawn from a particular taxpayer in a financial year.
This section is applicable to the withdrawals of the following taxpayers:
making the payment to following taxpayers in excess of INR 1 Crore, the payer
will deduct tax from the taxpayer’s bank account at the time of making payment.
The following payers who are making payment in cash will have to deduct TDS under this section:
limit fixed of INR 1 Crore in a financial year with respect to per Bank Account
or Post Office Account and not a taxpayer’s individual account. If an
individual had a total of 2 different bank account in two different banks, he
can withdraw cash in a financial year up to INR 2 Crore without TDS.
If an account is maintained by the taxpayer in a Bank from which an individual is withdrawing cash, only then such Bank will deduct TDS under section 194N. If a Bank makes a cash payment to an individual taxpayer of more than INR 1 Crore in any financial year, from the account maintained by such recipient, then the bank will deduct TDS. Payment is not made by the Bank to the account holder in case of payment made through a bearer cheque issued to the third party, and the recipient of cash is not the account holder, instead, it’s a third party.
certain persons on whom the provisions of this section do not apply:
In order to move towards the aim of a cashless economy and discourage the transactions and payments carried through cash, a proposal of this scheme is introduced in Union Budget 2019. TDS will be levied at the rate of 2 percent on cash payments made by the banks, post office, cooperative banks or a banking company to an individual from the account which is maintained by the recipient. With this, there are also various measures to curb cash transactions but they are still at debatable stages. For instance, businesses are not allowed to make cash expenses exceeding INR 10,000.
The introduction of this provision seemed to have a large-cap for cash withdrawals of INR 1 Crore. But also the provisions will affect the liquidity of manufacturing industries. These industries work with a huge amount of working capital needs for carrying their day to day transactions. A huge amount of cash will be held by the banks due to the deduction of TDS on every cash withdrawal over and above INR 1 Crore. As per the Income Tax provisions, a tax which is deducted as a TDS under this section shall be treated as tax paid by the payee on its income. Thus the payee can avail tax credit while filing his own Income Tax Return. But, any cash withdrawal from the bank account is not treated as Income.
Government of India has introduced section 194N in the Union Budget 2019 proposed on the 5th day of July, 2019 in order to discourage cash transactions and promote digital payments instead. Applicability of TDS deduction is for cash withdrawal above INR 1 Crore.
In case the payee keeps on withdrawing sum from his account at regular intervals , TDS is levied only when the aggregate of such sum exceeds INR 1 Crore. For example: if an individual withdraws INR 99 Lakhs and then withdraw INR 150000, in that case, TDS will be levied at the rate of 2 percent only on the excess amount of INR 50000.
The Bank is only returning the money to an individual from his own account. Clearly, banks cannot treat cash withdrawals as income.
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