TDS Under Section 194N- Cash withdrawal

To reduce the black money generation and flow, cash transactions need to be reduced. For this purpose, the government has taken various steps like demonetization. Section 194N is also a step taken by the Government for this purpose. Section 194N was introduced through Finance (No. 2) Act 2019 with effect from 1 September 2019.

Description of the provision introduced through finance bill 2019 dated 5th July 2019.

This section applies to Specific entities responsible for paying a sum or aggregate of sum, in cash exceeding Rs. 1 Crore to any person during a year. The entity shall be liable for a deduction of 2% of the sum exceeding Rs. 1 Crore.

The entities liable for deduction shall be:

Applicability o TDS Section 194N:

1. Section 194N shall be applicable to every person including Individual, HUF, partnership firm, LLP, Company, co-operative society, Artificial judicial person, Association of persons, and others.
2. Section 194N shall not be applicable on following persons:

• The Government
• Any banking company or a co-operative society engaged in carrying on the business of banking or a post office;
• any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
• any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorization issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007);
• such other persons or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.'.
• Cash Replenishment Agencies (Refer Notification 68/2019).
• Commission Agent or Trader of Agriculture Produce Market Committee (APMC) who has withdrawn cash over above of Rs. 1 crore for payment to farmers for Purchase of Agricultural produce (Refer Notification 70/2019).
• Authorized Dealers and Full Fledged Money Changer (Refer Notification 80/2019)

Threshold limit and Rate under TDS Section 194N :

Every entity paying a sum or aggregate of the sum in cash, in excess of one crore rupee to a person from one or more accounts with a particular entity, at the time of payment, deducts an amount equal to two percent of a sum exceeding Rs. 1 Crore in a year.

CBDT Press Release dated 30th August, 2019

Queries received from the general public through social media on the applicability of section 194N on withdrawal of cash from 01.04.2019 to 31.08.2019. CBDT clarifies that this section shall be effective from 01st Sept. 2019 however, since the threshold limit of Rs. 1 Crore is with respect of the previous year, calculation of the amount of cash withdrawal for triggering deduction shall be counted from 1st April, 2019.

Exemptions from the deduction for specific recipients:

Clause (v) of proviso to the said section had empowered the Central Government, in consultation with the Reserve Bank of India (RBI), to exempt by way of notification in Official Gazette, persons or class of persons so that payments made to such persons or class of persons shall not be subjected to TDS under this section. Accordingly, in exercise of the said power, Central Government has issued three notifications which are as under:

(a) Notification 68 of 2019 dated 18.09.2019: Cash Replenishment Agencies (CRAs) and franchise agents of White Label Automated Teller Machine Operators (WLATMOs) for the purpose of replenishing cash in ATMs operated by these entities subject to conditions mentioned in the said notification

(b) Notification 70 of 2019 dated 20.09.2019: Commission agent or trader operating under Agriculture Produce market Committee (APMC) and registered under any law relating to Agriculture Produce Market of the concerned State have been exempted subject to conditions specified in the said notification

(c) Notification 80 of 2019 dated 15.10.2019: The authorized dealer and its franchise agent and sub-agent and Full Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent for the purposes of-

(i) Purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by Reserve bank of India; or

(ii) Disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MFSS) of the Reserve Bank of India;

and subject to the conditions specified in the said notification.

Amendment in Section 194N w.e.f. 01st July, 2020 through Finance Act, 2020

Further scope of section 194 N was extended vide clause 84 of Finance Act 2020 by insertion of proviso to the section saying that:-

1. If the assessee hasn’t filed the income tax return for the previous 3 financial years the TDS rate will be deducted at the rate of 2% on the amount between INR 20 lakh to 1 crore withdrawn while 5% applicable on the amount exceeding the INR 1 crore of the FY.
2. If the assessee has filed the income tax return for the given year, there is no TDS deduction applicable however there will be a 2% TDS deduction on the amount above 1 crore.

Certain conditions for reduced TDS deduction under section 194N:

1. The return must be filed within the specified time period along with the income tax returns as per section 139(1).
2. The recently registered organization may not be eligible to get the reduced deduction due to the blank previous filing records.
3. There must be a declaration provided to the banker/co-operative society which must state the business of banking/post office in order to file the income tax returns of the past 3 FY.

Recent Amendments in TDS SEction 194N introduced in Finance Act 2020

By amending section 194N through finance act, 2020 new rate and new threshold limit have been inserted and the applicability of the same shall depend on the factors only available with income tax department and recipients. To easy functionality of this section CBDT introduced new functionality as “Verification of applicability u/s 194N” on www.incometaxindiaefiling.gov.in since 1st July 2020 and has also been made available to the Banks through web-services, so that the entire process can be automated and be linked to the Bank's internal core banking solution.

By entering PAN no. of the recipient, mobile No. and giving declaration anybody can check the rate and threshold limit applicability.

The author can also be reached at ca.robingarg1@gmail.com