TDS Section 194N| TDS on cash withdrawal

TDS on cash withdrawal

This article briefs about the applicability of TDS rates on cash withdrawal and summarises the press release on the same that Central Board of Direct Taxes (CBDT) issued on 12-07-2020.

CBDT has facilitated to ascertain TDS rates applicable on cash withdrawal.

Section 194N (Introduced by Finance (No. 2) Act, 2019

This section was introduced by the Finance Minister, Smt. Nirmala Sitharaman in her budget speech, wherein, she elaborated that the Government has taken a number of initiatives for promotion of the digital payments and less cash economy.

Section 194N specifies that a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies, co-operative society engaged in the business of banking, or a post office shall deduct TDS @ 2% of a sum exceeding one crore rupees that a person (recipient) withdraws from one or more of these accounts.

Section 194N is effective from 01 September 2019.

Let us discuss the provision with an example

Mr. Hardeep is an individual who maintains saving and current accounts with the bank. He withdrew INR 85 lacs from his account until 15-08-2019. After that he again withdrew INR 21 lacs from his account between 01-12-2019 to 31-01-2020. Now the following two questions arise:

1. Should the cash withdrawal before 1-9-2019 be considered for counting threshold limit of INR 1 crore?
2. Should the TDS @2% be deducted?

Solution:

1. The CBDT had issued press release on 30-08-2019 specifying that the threshold of INR 1 crore is with respect to the previous year. The calculation of amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 01 April 2019.
2. Mr. Hardeep had withdrawn aggregate of INR 1.06 crore until 31-01-2020 that exceeds the threshold limit mentioned in Section 194N, and hence TDS @2% is deductible.

The Finance Act, 2020 made an amendment to Section 194N and inserted a proviso.

The proviso is discussed as under:

First proviso to Section 194N talks about the persons who have not filed Income Tax Return (ITR) for 3 years and whose time limit for filing return is expired as per section 139(1) of the Income Tax Act,1961. If this person has withdrawn aggregate cash exceeding INR 20 lacs but up to rupees one crore, then TDS will be deducted at the rate of 2%. If the aggregate amount of cash withdrawal exceeds rupees one crore, then TDS will be deducted at the rate of 5%.

The TDS rates is as under:

Non-Filing of Income Tax Return (ITR)

• 2% (cash withdrawal exceeds rupees 20 lacs but upto rupees one crore)
• 5% (cash withdrawal exceeds rupees one crore)

Filing Income Tax Return

• 2% (cash withdrawal exceeds rupees one crore)

New Functionality on Income Tax Site

The Income Tax Department has made available the functionality as Verification of applicability u/s 194N on incometaxindiaefiling.gov.in since 01 July 2020. The steps to perform this functionality is as under:

1. Visit incometaxindiaefiling.gov.in
2. On the left-hand side, click the Verification of applicability u/s 194N link.
3. Enter PAN and mobile number of the person (recipient), and click Continue.
4. Enter the OTP received on the mobile number of the person (recipient), and click Submit.
5. A message will appear confirming the TDS rate applicable to the person (recipient).

To conclude,

1. Section 194N is applicable on a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies, co-operative society engaged in the business of banking, or a post office.
2. The person who files a return on or before time, he will get benefit in the way that the threshold limit for them is in excess of INR one crore.
3. The person who has not filed ITR will be caught with this provision if cash withdrawal is above 20 lacs.
4. The cash withdrawal is not counted as income while computing total income as it will reflect in Form 26AS.
5. The TDS could be claimed in ITR even if assessee has no income.

The authors can also be reached at chanchaljain2007@gmail.com or ca.jain18@gmail.com

Disclaimer: The above article is meant for informational purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. While due care has been taken during the compilation of this article to ensure that the information is accurate to the best of our knowledge and belief, the contents of such article do not substitute for professional advice that may be required. The individual expressly disclaims all and any liability to any person who has read this document or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this article.