The 2016 Demonetization marked the advent of digital transactions in India. From then on, the government has taken numerous steps to promote digital transactions across India. One such measure taken is the Introduction of Section 194N in the 2019 Union Budget. This section specifically talks about the cash withdrawals exceeding Rs. 1 Crore in a Financial year. In this blog we have covered some FAQ on cash withdrawals for the benefit of all taxpayers.
1. Whom does this Section apply to?
This Section applies to all taxpayers irrespective of fact that you may be an individual, HUF, partnership firm, Company or any other form of organization.
2. Who will deduct the amount while withdrawing?
The payer (Bank, Post Office etc.) will deduct the amount of tax during the time of payment. The limit of 1 Crore in a financial year is not based on tax payer’s individual account. It is applicable with respect to per bank or post Office account. Eg:
I have a requirement of 1.5 Crores and I have two bank accounts in two different banks holding a balance of 4 Crores in each of the accounts. in that case If I am planning to withdraw 1.5 Cr from two different banks TDS will be deducted on withdrawal by the two banks separately and not on the total withdrawal I make. This is applicable only if the tax payer has filed his return of Income for all the Assessment Years.
3. From when is the provision of 194N applicable?
It is applicable for payments made on or after September 01, 2019.
4. When TDS is deducted under this Section?
The payer will have to deduct TDS at the rate of 2 percent on cash payment/withdrawals exceeding 1 Crore. This is applicable for individual who have filed their tax returns in the previous years without any default. In case if an individual has not filed his return for the last three Assessment Years withdrawals exceeding 20 lakhs upto 1 Crore, 2 % will be deducted and on withdrawal exceeding 1 Crore 5 % will be deducted. For the purpose of computation of 20 Lakhs the total withdrawal of cash during the previous year shall be considered. The table and the example below will help you understand the concept better.
Scenario 1 : Where the individual has filed his returns for all the Assessment Years
Scenario 2: Where the individual has not filed his returns for the last three Assessment Years
Let’s say Mr. R has saving and current account with 2 branches if the same bank and the details of cash withdrawn are as follows:
Since the Amendment is effective from 1st july 2020, TDS will be deducted on the amount exceeding Rs. 1 Crore at 2% for the Financial Year 2019-20 ie Rs. 1.4 Lakhs.
For the next Financial Year ie FY 2020-21
In case total cash withdrawal for the year is Rs 30 Lakhs TDS will be deducted on @ 2% on amount exceeding Rs 20 Lakhs ie
(Rs.30Lakh-20 lakh)*2% = Rs 20,000/-
In case of total cash Withdrawal is Rs 1,70,00,000 /- TDS will be deducted on amount exceeding 1 Crore @ 5% ie
(Rs 1.7 Crores-1 Crore)*5% = 3.5 Lakhs
4. Will TDS be deducted if I withdraw more than 1 Crore in at different times in a financial Year?
Yes, The provision states withdrawals exceeding Rs. 1 Crore in a particular Financial Year. This includes withdrawal of an amount exceeding 1 Crore as a single transaction as well as over multiple transactions in a particular financial year.
Note:
Section 194N will not apply on withdrawals made by the following tax payers:
- Government Body
- Bank including co-operative banks
- Business correspondent of a banking company
- ATM operator of any bank
- Farmers and Commission agent or trader operating under Agriculture produce market committee.
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