The segment serves the aim of eradicating big cash withdrawals from bank accounts and eradicating black money in India. A thorough examination of the section is listed below to give you an understanding of its features.
Section 194N was adopted by the government in the Union Budget 2019 presented on July 5, 2019. To deter cash transactions in the country and foster the digital economy, the Finance Bill, 2019, included ‘Section 194N – TDS on cash withdrawals exceeding Rs 1 crore.’
What is Section 194N?
Section 194N applies to any cash withdrawals made by an individual from a bank account exceeding Rs.1 crore during the financial year. It applies to the withdrawal of all the sum of money or the aggregate of all sums from a bank in a financial year.
However, this section is not applicable to the individuals if the payment is made to –
- The government
- Any Private or Public sector bank
- A post office
- A cooperative bank
- Business correspondents of a banking company
- White-label ATM operators
- Any other person notified by the Government of India.
This holds true even if the individual has withdrawn money from different branches of the same bank. However, if the taxpayer holds accounts in multiple banks, the TDS deduction threshold will be 1 crore for each bank, i.e., 2 crores for 2 banks and so on. Let us take an example –
Mr Ram has withdrawn the following amounts from different SBI Bank and hdfc Bank branches.
- Rs 50 lakh from Branch A – SBI
- Rs 30 lakh from Branch B – SBI
- Rs 40 lakh from Branch C – SBI
- Rs 20 lakh from Branch D of ICICI Bank
In this case, as per provisions of section 194N, the TDS will be deducted on Rs.20 lakhs, i.e., only on the amount in excess of the threshold of Rs.1 crore.
| Particulars | Amount |
|---|---|
| Rs 50 lakh from Branch A | 50,00,000 |
| Add: Rs 30 lakh from Branch B | 30,00,000 |
| Add: Rs 40 lakh from Branch C | 40,00,000 |
| Rs 20 lakh from Branch D of ICICI Bank | – |
| Total | 1,20,00,000 |
| Less: Threshold Limit of Rs 1 cr | 1,00,00,000 |
| Amount Eligible for TDS u/s 194N | 20,00,000 |
Deduction of TDS under Section 194N
Section 194N requires the individual (payer) making the cash transfer to subtract TDS. Here is a list of those people:
- Bank (private or public sector)
- co-operative bank
- post office
Such groups of people (payees) are exempt from the provisions of this section. They are as follows:
- Any federal agency
- Any kind of bank, including cooperative banks
- Any banking company’s corporate correspondent (including co-operative banks)
- Any bank’s white label ATM operator (including co-operative banks)
- Any other citizen who has been informed by the government
TDS Rate under Section 194N
Section 194N requires the payer to subtract TDS at a rate of 2% on cash payments/withdrawals of more than Rs 1 crore in a fiscal year. Thus, in the preceding case, TDS will be levied on Rs 50,000 at a rate of 2%, i.e. Rs 1,000. If the person earning the money has not filed an income tax return in the three years preceding the year, the TDS is 2% on cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and 5% on withdrawals exceeding Rs 1 crore.
What is the aim of TDS in Section 194N?
TDS will be withheld by the payer after making cash payments to the payee in excess of Rs 1 crore in a fiscal year. If the payee withdraws money at regular intervals, the payer must subtract TDS from the balance if the cumulative amount withdrawn reaches Rs 1 crore in a fiscal year. TDS will also be levied for amounts above Rs 1 lakh. For example, if an individual withdraws Rs 99 lakh in total during the fiscal year and then withdraws Rs 1,50,000, the TDS liability is only on the excess sum of Rs 50,000.
FAQs
What is TDS on cash withdrawal?
TDS (Tax Deducted at Source) on cash withdrawal is a tax collected by banks or financial institutions when individuals or businesses withdraw large sums of cash from their accounts.
Who is liable to deduct TDS on cash withdrawals?
Banks, co-operative banks, and post offices are responsible for deducting TDS when customers withdraw cash beyond the prescribed limits.
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