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The government has been focusing on creating a cashless economy in recent years. In a step forward towards its initiative of promoting digital India, Finance Minister Smt. Nirmala Sitharaman introduced section 194N in the Budget 2019. This section provides for the deduction of TDS on cash withdrawals made from banks, cooperative banks, post offices, etc, during a financial year. As per this section, if the annual cash withdrawal from a bank or the aggregate of withdrawals from a bank during a financial year exceeds a specified threshold, then the payer shall deduct TDS at the applicable rates. However, there are various conditions and exceptions to this. In this article, we explore the various aspects of section 194N, conditions for TDS deduction, exceptions, applicability, etc.
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 on the withdrawal of all the sum of money or the aggregate of all sums from a bank in a financial year. Taxpayers in this case include -
However, this section is not applicable to the individuals if the payment is made to -
This holds true even if the individual has withdrawn money from different branches of the same bank.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Mr Dhawan has withdrawn the following amounts from different SBI Bank and ICICI Bank branches.
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 |
Since Rs.20,00,000 was withdrawn from ICICI bank; therefore, the total amount of withdrawal from ICICI bank is below the individual threshold limit of Rs.1 crore and is not eligible for TDS deduction.
In order to discourage cash transactions and encourage and promote the digital India initiative, the government introduced section 194N in Budget 2019. As per this section, every bank, cooperative bank, or institution has to deduct TDS from the transaction value at the time of making the payment at the applicable TDS rates.
The payer must deduct TDS when making the payment at @2% if the total cash withdrawals exceed Rs.1 crore in a financial year. However, if the individual making the withdrawal has not filed his/her ITR in the preceding 3 years, then TDS has to be deducted at 2% for withdrawals above Rs.20 lakhs and upto Rs.1 crore and 5% for withdrawals exceeding Rs.1 crore.
| Withdrawal in a F.Y. | TDS Rate (if ITR filed for last 3 years filed) | TDS Rate (ITR for last 3 years not filed) |
|---|---|---|
| Up to Rs.20 lakhs | Nil | Nil |
| Rs.20 lakhs - Rs.1 cr. | Nil | 2% |
| Above Rs.1 cr. | 2% | 5% |
Note:- If a person has three bank accounts with three different banks, he can withdraw cash of Rs 1 crore * 3 banks, i.e. Rs 3 crore without any TDS.
The payer has to deduct TDS when making any cash payment above Rs. 1 crore or if the aggregate payment to the same payee exceeds Rs. 1 crore during a financial year.
Also, TDS will be deducted only on the amount exceeding Rs.1 crore. For example, if the payee withdraws Rs.50,00,000 and Rs.50,50,000 during a financial year, then TDS will be deducted on Rs.50,000 (Rs.1,00,50,000 - Rs.1,00,00,000).
The person (payer) making the cash payment is responsible for deducting TDS. Listed below are the persons responsible for the TDS deduction.
The provisions under section 194N are not applicable in case payment is made to the following person:
Yes, you can claim a refund of the TDS deducted u/s 194N or get it adjusted against your total income tax liability. However, to claim a refund of the same, your annual income must not exceed the basic exemption limit. Also, it is mandatory to file an ITR if you want to claim a refund of TDS under section 194N.
In addition to this, it is also important to note that you might have to pay extra tax if you fail to file your ITR. As per the amendment in section 194N in the year 2021, the threshold for TDS deduction for individuals who have not filed their ITR was reduced to Rs.20 lakhs. This means that if you have not filed your ITR for the last 3 years, TDS @2% will be deducted on cash withdrawals exceeding Rs.20 lakhs instead of Rs.1 crore.
So, if you have not filed your ITR yet, you can still file a belated return. The last date for filing a belated return is 31st December 2023. Also, if you need expert assistance to file your return, Tax2win’s CAs are here to help you throughout your ITR filing journey.
Yes, TDS shall be deducted if, in a financial year, cash exceeding Rs. 1 crore is withdrawn from the post office.
Yes, you can claim a refund of the TDS deducted on cash withdrawal from the total tax liability under section 194N while filing your ITR.
No, TDS will not be deducted in this case as the aggregate amount withdrawn in cash does not exceed Rs. 1cr. However, if ABC has not filed ITR in the previous 3 years, then TDS has to be deducted at @2% on an amount upto Rs.1 crore.
As per this section, TDS is deductible if aggregate payment in cash exceeds Rs. 1cr. In the above case, the aggregate amount withdrawn in cash is Rs. 1.03cr, which exceeds Rs. 1cr; hence, TDS will be deducted. Now, the matter of consideration is whether TDS is deducted on Rs. 1.03cr or 3lac. From the language of the law, TDS @ 2% should be deducted on Rs. 3lac, which has exceeded the threshold limit of Rs 1cr in this case.
