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What is Section 194 N?
Section 194N has been introduced via Union Budget 2019, the first Fiscal Budget presented by H’ble Finance Minister Nirmala Sitaraman. As per this provision, TDS will be deducted on cash withdrawals exceeding Rs.1 crore. The tax deduction would be made starting from 01 September, 2019. Further, while calculating the limit of Rs 1cr limit all accounts maintained by a person with one bank are to be considered. Which means,
Mr Dhawan has withdrawn the following amounts from different branches for SBI Bank
- Rs 50 lakh from Branch A
- Rs 30 lakh from Branch B
- Rs 40 lakh from Branch C
- Rs 20 lakh from Branch D of ICICI Bank
In this case as per provisions of section 194N 2% TDS would be deducted by SBI Bank on Rs 2 lakh i.e
| 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 |
| TDS @2% by SBI Bank | 40,000 |
What was the need for introducing Section 194N?
One of the key initiatives taken by the NDA Government is ‘Digital India’ programme. To encourage the same and pave a way ahead towards a cashless economy, section 194N was introduced in Budget 2019. Levy of 2% TDS on cash withdrawals exceeding Rs 1cr in a FY will result in more digital payments. Adding a contribution to the government's digital India initiative.
What is the rate of TDS u/s 194N and when TDS is required to be deducted?
As per section 194 N of the income tax act TDS will be deducted at the rate of two(2) percent on cash withdrawal in excess of Rs. 1 crore.
TDS will be deducted when payment would be made by the Bank, Co operative society or Post Office i.e. TDS will be deducted at the time of making the payment.
Let’s say if cash withdrawn by Mr Dhawan is Rs. 1cr then in that case TDS will not be deducted.Since the amount does not exceed Rs 1cr.
Who is responsible to deduct TDS u/s 194 N?
The responsibility to deduct TDS is of following persons:
- A Banking company (whether public or private)
- A co-operative society engaged in the business of banking
- A post office
When section 194N is not applicable?
The provisions under section 194N are not applicable in case payment is made to the following person:
- Government
- Banking company
- Co-operative society engaged in the business of banking
- Any business correspondent authorised by RBI
- Any white label automated teller machine operator authorised issued by the RBI
- Any other person which central government may specify by the notification
Some Other Important Aspects
The other key aspects of this section include:
- TDS is deducted on cash withdrawals in excess of Rs 1cr and no TDS shall be deducted till the limit of Rs 1cr.
- As per recent notification ( NN 70/2019) dated 20 September, 2019 – No TDS under section 194N shall be deducted on cash withdrawal made by
- Commission agents or
- Trader operating under Agriculture Produce Market Committee (APMC) for the purpose of making payments to the farmers on account of purchase of agriculture produce.
Section 194N is applicable from 01 September, 2019 hence any cash withdrawal prior to 01 September, 2019 will not be subject to TDS. However, cash withdrawal before 01 September, 2019 shall be counted for threshold of Rs 1 cr. Let’s understand this with an example :
Example 1
ABC ltd has made the following withdrawals during the FY 2019-20
- Withdrawn cash Rs 1.2cr on 25 July, 2019.
In this case TDS will not be deducted because cash was withdrawn before September 01, 2019.
Example 2
ABC Ltd has made the following cash withdrawals during the FY 2019-20
- Rs. 95lac on 20 Aug, 2019 and
- Rs. 10lac on 02 Sep, 2019.
Now, two separate calculations would be made in this case:
Now, two separate calculations would be made in this case:
1- Calculation of Rs 1cr Limit for applicability of section 194N
The Limit of Rs 1cr will be calculated for all cash withdrawals made from 1st April 2019. Therefore the total cash withdrawal in this case is
Rs 95lac + Rs 10lac = Rs 1.05 lac
Hence, Section 194N will be applicable in this case.
2- Calculation of Tax Deduction at Source TDS
Under Section 194N of the income tax act TDS would be deducted for any cash withdrawal exceeding Rs 1cr after 1 sep 2019 @2%.
| Transactions | Amount |
|---|---|
| Cash withdrawn on 20 Aug, 2019 | Rs. 95lac |
| Cash withdrawn on 2 Sep, 2019 | Rs. 10lac |
| Total cash withdrawn | Rs. 1.05cr |
| Less : Threshold Limit of Rs 1 cr | Rs. 1cr |
| Amount Eligible for TDS u/s 194N | Rs. 5lac |
| TDS @ 2% | Rs 10,000 |
Frequently Asked Questions
Q- Is TDS deductible in case, cash is withdrawn from the post office?
Yes, TDS will be deducted if in a Financial Year cash exceeding Rs. 1 crore is withdrawn from the post office. For the FY 2019-20 TDS shall be deducted if the amount exceeding Rs 1cr is withdrawn from post office account after 1 Sep 2019.
Q- Can we submit lower TDS certificate for the purpose of Section 194N?
No, lower TDS certificate cannot be submitted for the purpose of the provisions under Section 194N.
Q- ABC has withdrawn Rs. 1cr in cash, whether TDS u/s 194N will be deducted in this case?
No, TDS will not be deducted in this case as aggregate amount withdrawn in cash does not exceed Rs. 1cr.
Q- I have withdrawn in cash the following amounts during the FY 2019-20 Rs. 98L on 2nd September, 2019 & Rs. 5L on 10th Oct, 2019 Will TDS u/s 194N be deducted in this case? If Yes, on what amount?
As per this section, TDS is deductible if aggregate payment in cash exceeds Rs. 1cr. In the above case, 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 law, TDS @ 2% should be deducted on Rs. 3lac which has exceeded the threshold limit of Rs 1cr in this case.
Q- Whether the limit of Rs. 1cr is for single account or for all accounts maintained with a bank?
The limit of Rs. 1cr is overall limit for all accounts (like saving A/c, current A/c etc) maintained by a person with one bank. The limit is per bank rather than per account. Let us take the help of an example to better understand the scenario :-
| Transactions | Amount |
|---|---|
| Cash withdrawn from Saving Account (from all branches) | Rs. 45lac |
| Cash withdrawn from Current Account (from all branches) | Rs. 65lac |
| Total cash withdrawn | Rs. 1.10cr |
| Amount eligible for TDS deduction u/s 194N | Rs. 10lac |
Q- Can I claim the credit of TDS deducted u/s 194 N?
Since the implementation of Section 194N has recently been made effective hence there is no practical clarity on the matter. Different opinions are being taken up for claiming of credit of TDS deducted u/s 194N.
As per opinion of majority you can validly claim credit/refund of TDS deducted u/s 194N while filing your Income Tax Return. The support for this opinion can be found in the fact that the TDS amount is reflected in 26AS and hence can be validly claimed.
On the other side since the law has made the use of words Levy of TDS and no levy like surcharge or cess can be claimed as a refund.Hence,some opine that the credit of TDS deducted u/s 194N cannot be claimed.
Q- How the tax deducted under Section 194N will be reflected under Form 26AS?
Form 26AS is a statement for such income on which tax is deducted and deposited to government by deductor. However, cash withdrawal cannot be considered as an income. Therefore, the government has simultaneously amended section 198 of the Income Tax Act wherein it is clarified that cash withdrawal shall not be deemed to be the income of the person.
Q- If A Ltd maintains an account with XYZ Bank. Now, A Ltd issue a bearer cheque/ Demand Draft of Rs. 2 crore to B Ltd and B Ltd encash the cheque from the Bank. Whether TDS is deductible in such case?
As there is no clarity provided in law. There are different opinions on the same. As per first opinion, TDS shall be deducted in this case. However, as per other possible view, TDS is not applicable as account holder is requesting the bank to issue a bearer cheque or demand draft and he is not withdrawing cash under the purview of Section 194N.
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