Taxation

All about TDS Liability (Section 194N) on Cash Withdrawals

All about TDS Liability (Section 194N) on Cash Withdrawals

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.

What are the provisions for TDS Liability?

Section 194N of the Income Tax Act, 1961[1] 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:

  • An individual;
  • A company;
  • A local authority;
  • A company;
  • A Hindu Undivided Family (HUF);
  • An association of person (AOPs);
  • Body of Individuals (BOIs).

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.

Why Section 194N was introduced?

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.

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Who will deduct the amount as TDS Liability under Section 194N?

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.

  • A co – operative;
  • A post office; or
  • Any bank (private or public).

The above mentioned are the entities responsible to collect the deducted TDS.

Are there any exemptions to TDS on cash withdrawals?

There are certain exempted bodies from which the TDS will not be collected. The bodies are:

  • State or Central Government;
  • Co – operative Banks;
  • Post Office;
  • Banks;
  • White label ATM operators;
  • Any other person as per the notification of the Government with the consultation with RBI.

What are the rate & threshold limit of TDS under Section 194N?

The following are the rates & threshold limit under section 194N for TDS Liability:

  • The TDS to be deducted is 2% on the cash withdrawal above Rs. 1 crore, for an individual who has received the money & has filed ITR for any 3 years immediately preceding the year;
  • When an individual has not filed an ITR for the 3 years for which the time limit to file ITR has expired as per the Section 139(1), then the TDS deducted is 2% on the cash withdrawals above Rs. 20 lakhs & up to Rs. 1 crore and 5% on cash withdrawal exceeds Rs. 1 crore (as per the recent amendment w.e.f 1st July, 2020)

The recipient can’t apply under section 197 for the lower deduction certificate & cannot furnish Form No. 15G / 15H.

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The rates under section 194N are listed in the table below.

Aggregate Amount of cash withdrawalITR filed for the previous 3 yearsITR not filed for the previous 3 years
Up to Rs. 20 LakhsNilNil
Ranges between Rs. 20 lakhs & Rs. 1 croreNil2%
Above Rs. 1 crore2%5%

What is the Applicability of Section 194N related to TDS Liability?

  • when amount is withdrawn from one or more account maintained with same bank/cooperative bank

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.

Cash withdrawal dateCash withdrawal from the savings accountCash withdrawal from the current account
1st April, 201920,00,00020,00,000
5th July, 20195,00,00010,00,000
31st August, 20194,00,00025,00,000
1st September, 201950,00,00045,00,000
1st March, 202065,00,00020,00,000
  • when amount is withdrawn from different branches of same bank

Rs. 1 crore is the limit is for the cash withdrawal made from all the branches of a bank.

For example,

Where XYZ has withdrawn cash from the following branches of Bank of India during the financial year on:

DatesBranchAmountTDS deducted
1st July, 2019Delhi BranchRs. 70 lakhsN / A
1st October, 2019Kolkata BranchRs. 80 lakhs2% on Rs. 50 lakhs
1st December, 2019Chandigarh BranchRs. 90 lakhs2% on 90 lakhs
  • when amount is withdrawn from different banks
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The cash withdrawn from 2 banks must not be aggregated for the threshold limit of Rs 1 crore.

For example,

DatesAmountTDS deducted
30 AprilRs. 10 lakhsNil
31 MayRs. 15 lakhsNil
31 JulyRs. 30 lakhs2% on 50 lakhs
30 SeptemberRs. 80 lakhs5% on 30 lakhs

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.

Conclusion

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.

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