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July 1, 2020

Know all about TDS on cash withdrawal from Bank from July 01, 2020 Section 194N of Income Tax

by Mahesh Mara in Compliance Law, Income Tax

Know all about TDS on cash withdrawal from Bank from July 01, 2020 Section 194N of Income Tax

It is a well-known fact that people tend to find ways to evade tax and this leads to accumulation of black money. Government has to tackle such tax evasion tactics and bring all the money under its umbrella.  To discourage cash transactions in the country and promote digital economy, the government, in July 2019, introduced Section 194N in the Income Tax Act, 1961 for tax deducted at source (TDS) at the rate of 2% on cash withdrawals over and above Rs 1 crore. The Finance Act, 2020 tightened it by lowering the threshold of Rs 1 crore to Rs 20 lakh for those who have not filed their income tax returns (ITRs) for the past three years. Further, the rate of TDS has also been increased to 5 per cent for these taxpayers for withdrawal exceeding Rs 1 crore.

What is Section 194N?

Scope of Section 194N prior to amendment by Finance Act 2020:-

Section 194N is made applicable from September 1, 2019. Every bank or post office shall be required to deduct TDS on cash withdrawal made on or after September 1, 2019. The tax shall be deducted at the rate of 2% on the amount of cash withdrawal exceeding Rs. 1 crore.

Amendment of Section 194N by Finance Act 2020:-

The Scope of TDS on cash withdrawal has been extended.

  • TDS @ 2% is required to be deduced if the withdrawer has not filed his tax return for three years and withdrawal during the year exceeds Rs 20 lakhs but less than Rs 1 crore.
  • For withdrawals exceeding Rs 1 crore TDS @ 5% is required to be deducted 

From what date will the amended Section 194N be applicable?

Amendment of Section 194N will be with effect from July 1, 2020.

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Who is required to deduct tax under Section 194N?

The below mentioned persons making the cash payment will have to deduct TDS under Section 194N:-

  • Every banking company
  • A co-operative bank
  • A post office

Section 194N will be applicable on withdrawals by which taxpayers?

The section will apply to withdrawals made by following taxpayers:-

  • Individual
  • Hindu Undivided Family (HUF)
  • Company
  • Partnership firm or LLP
  • A local authority
  • Association of Person (AOPs) or Body of Individuals (BOIs)

When shall tax not required to be deducted?

No tax shall be required to be deducted if cash withdrawal is made by the following recipients:-

  • Central or State Government
  • Banks
  • Co-operative bank
  • Post Office
  • Banking correspondents
  • White label ATM operators
  • Other persons notified by the Government in consultation with the RBI.

Mr A has filed all his returns for the 3 preceding AY’s. He withdraws Rs 25 lakhs from his bank for an urgent medical emergency. Is the bank required to deduct TDS on such withdrawal?

No TDS under Section 194N will be deducted as cash withdrawal is upto Rs 1 crore and Mr A has filed all his returns for the 3 preceding AY’s.

Mr B has not filed his returns for the 3 preceding AY’s. He withdraws Rs 10 lakhs from his bank for travel abroad. Is the bank required to deduct TDS on such withdrawal?

No TDS under Section 194N will be deducted as cash withdrawal is less Rs 20 lakhs. The fact that Mr B has not filed his return for 3 preceeding AY’s will not be considered here.

Mr C has filed all his returns for the 3 preceding AY’s. He withdraws Rs 1.5 crore from his bank for a family function. Is the bank required to deduct TDS on such withdrawal?

TDS @ 2%under Section 194N will be deducted as cash withdrawal is exceeding Rs 1 crore and Mr C has filed all his returns for the 3 preceding AY’s.

Mr X has not filed his returns for the 3 preceding AY’s. He withdraws Rs 30 lakhs from his bank for a medical emergency. Is the bank required to deduct TDS on such withdrawal?

TDS @ 2%under Section 194N will be deducted as cash withdrawal is exceeding Rs 20 lakhs and Mr X has not filed his return for the 3 preceding AY’s.

Mr Y has not filed his returns for the 3 preceding AY’s. He withdraws Rs 1.30 crores from his bank for a medical emergency. Is the bank required to deduct TDS on such withdrawal?

TDS @ 5%under Section 194N will be deducted as cash withdrawal is exceeding Rs 1 crore and Mr Y has not filed his returns for the 3 preceding AY’s.

Compute TDS of Mr. J who has saving and current account with a bank and has not filed returns for the 3 preceding AY’s. The details of cash withdrawn from both the accounts are as follows:

Date of WithdrawalWithdrawal from saving accountWithdrawal from current accountTDS under Section 194N
2019-202050,00,0001,05,00,000[50 lakhs + 1.05 crore – 1 crore] * 2% = 1,10,000
01.05.202015,00,00010,00,000No TDS
Post 01.07.202015,00,00010,00,000[15 lakhs + 10 lakhs – 20 lakhs] * 2% = 10,000
Post 01.07.202025,00,0001,15,00,000[25 lakhs + 115 lakhs – 1 crore] * 5% = 2,00,000

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