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The Union Budget 2020 presented by the Finance Minister has reduced the threshold limit for TDS to Rs. 20 lakhs for the taxpayers who have not filed the ITR for the last 3 Financial Years. Such persons withdrawing cash over Rs. 20 lakhs have to pay 2% as TDS Liability.
The Union Budget of 2019 introduced the deduction at source (TDS) on cash withdrawal above Rs. 1 crore to discourage the cash payments.
In this article, we will study the recent trends related to TDS Liability on cash withdrawals.
Section 194N of the Income Tax Act, 1961 deals with the applicability of TDS Liability on cash withdrawals that exceeds the threshold limit. The section applies to all the sum or aggregate of sums that a payer withdrew in a financial year.
Who will be the Payee for TDS Liability?
TDS deduction on cash withdrawal under section 194N applies to all the taxpayers that includes:
The section applies to residents & non – residents for the cash withdrawal. Therefore, if a non – resident withdraws Rs. 150 lakhs from his NRE account in India, the bank will deduct TDS of Rs. 1, 00,000.
Objectives of Section 194N
The section aims to eliminate large cash withdrawals from the bank accounts & to prevent the collect of black money from India.
The government in the Union Budget 2019 which was proposed on 5th July 2019, to discourage transactions in cash in the country & to promote digital economy, i.e., Section 194N – TDS on cash withdrawals above Rs. 1 Crores, was introduced in the Finance Bill, 2019.
The persons who is making cash payment, will have to deduct TDS under Section 194N.
Here is the list of persons who have to pay TDS on cash withdrawal.
The above mentioned are the entities responsible to collect the deducted TDS.
There are certain exempted bodies from which the TDS will not be collected. The bodies are:
The following are the rates & threshold limit under section 194N for TDS Liability:
The recipient can’t apply under section 197 for the lower deduction certificate & cannot furnish Form No. 15G / 15H.
The rates under section 194N are listed in the table below.
Section 194N was inserted by the amendment w.e.f 1–09–2019, the tax deducted will be done after the said date. However, for the purpose of calculation, the threshold limit of Rs. 1 crore & the aggregate amount of the cash withdrawal from one to another accounts during the previous year.
Rs. 1 crore is the limit is for the cash withdrawal made from all the branches of a bank.
Where XYZ has withdrawn cash from the following branches of Bank of India during the financial year on:
The cash withdrawn from 2 banks must not be aggregated for the threshold limit of Rs 1 crore.
The bank is liable to deduct TDS only on the amount withdrawn on 31 July & 30 September as the aggregate value will exceed the threshold limit.
The TDS Liability will be assessed as per the recent amendment that states, if the assesse has not filed an ITR of previous 3 years, then the TDS Liability of 2% on the amount withdrawn will be levied, if the amount ranges between 20 lakhs & 1 crore. If the amount exceeds 5 crores, then 5% will be levied.
If the assesse has filed the ITR for a given year, then there is no TDS deduction applicable, however, for the amount that exceeds 1 crore then 2% TDS deduction will be levied.
Read our article: All about Online TDS Payment Challan
Completed BA LLB from JEMTEC, School of Law, Greater Noida (Affiliated to GGSIP University, New Delhi). I have an experience of about 2 years in various fields of corporate laws, but I have a keen interest in researching on legal issues and to gain knowledge. I always strive to bring the best to work on what I do.
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