CBDT empowers Banks to find out if person removed cash in excess of limit in Section 194N has filed ITR

CBDT issues press release to provide process for actioning section 194N. Now Banks will be able to find out if the person who has withdrawn cash in excess of the limits has filed his past returns of income or not as per limits in Section 194N

Central Board of Direct Taxes in exercise of powers conferred under section 138(1)(a) of Income Tax Act, 1961, has issued Order in F.No. 225/136/2020/ITA.II dated 31.08.2020, for furnishing information about IT Return Filing Status to Scheduled Commercial Banks, notified vide notification No. 71/2020 dated 31.08.2020 under sub-clause (ii) of clause (a) of sub-section (1) of section 138 of the Act.

The data on cash withdrawal indicated that huge amount of cash is being withdrawn by the persons who have never filed income-tax returns.

Know who all are exempted from TDS on cash withdrawal u/s 194N

To ensure filing of return by these persons and to keep track on cash withdrawals by the non-filers, and to curb black money, the Finance Act, 2020 w.e.f. 1st July, 2020 further amended Income-tax Act, 1961 to lower the threshold of cash withdrawal to Rs. 20 lakh for the applicability of TDS for the non-filers and also mandated TDS at the higher rate of 5% on cash withdrawal exceeding Rs. 1 crore by the non-filers.

Income Tax Department has already provided a functionality “Verification of applicability u/s 194N” on http://www.incometaxindiaefiling.gov.in for Banks and Post offices since 1st July, 2020. Through this functionality, Bank/Post Office can get the applicable rate of TDS under section 194N of the Income-tax Act, 1961 by entering the PAN of the person who is withdrawing cash.

The Department has now released a new functionality “ITR Filing Compliance Check” which will be available to Scheduled Commercial Banks (SCBs) to check the IT Return filing status of PANs in bulk mode. The Principal Director General of Income-tax (Systems) has notified the procedure and format for providing notified information to the Scheduled Commercial Banks. The salient features of the using functionality are as under:

a. Accessing “ITR Filing Compliance Check”:

The Principal Officer & Designated Director of SCBs, which are registered with the Reporting Portal of Income-tax Department (https://report.insight.gov.in) shall be able to use the functionality after logging into the Reporting Portal using their credentials. After successfully logging in, link to the functionality “ITR Filing Compliance Check” will appear on the home page of the Reporting Portal.

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b. Preparing request (input) file containing PANs:

The CSV Template to enter PAN details can be downloaded by clicking on “Download CSV template” button on the “ITR Filing Compliance Check” page. PANs, for which IT Return filing status is required, are required to be entered in the downloaded CSV template. The current limit of PANs in one file is 10,000.

c. Uploading the input CSV file:

Input CSV file may be uploaded by clicking on Upload CSV button. While uploading, “Reference Financial Year” is required to be selected. Reference Financial Year is the year for which results are required. If selected Reference Financial Year is 2020-21 then results will be available for Assessment years 2017-18, 2018-19 and 2019-20. Uploaded file will start reflecting with Uploaded status.

d. Downloading the output CSV file:

After processing, CSV file containing IT Return Filing Status of the entered PANs will be available for download and “Status” will change to Available. Output CSV file will have PAN, Name of the PAN holder (masked), IT Return Filing Status for last three Assessment Years. After downloading of the file, the status will change to Downloaded and after 24 hours of availability of the file, download link will expire and status will change to Expired.

Scheduled Commercial Banks can also use API based exchange to automate and integrate the process with the Bank’s core banking solution. Scheduled Commercial Banks are required to document and implement appropriate information security policies and procedures with clearly defined roles and responsibilities to ensure security of information.

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Know who all are exempted from TDS on cash withdrawal u/s 194N

The Government of India to discourage cash transactions in the country and promote digital economy, introduced Section 194N in the Income Tax Act, 1961 for deducting tax 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% for taxpayers whose withdrawal exceeds 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 effective from July 1, 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

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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?

The Central Government, in consultation with the Reserve Bank of India (RBI), is empowered 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 section 194N. Accordingly, in exercise of the said power, Central Government issued the following three notifications to provide such exemption:

Notification 68 of 2019 dated 18.09.2019

Cash Replenishment Agencies (CRAs) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) maintaining a separate bank account from which withdrawal is made only for the purposes of replenishing cash in the ATM’s operated by such WLATMO’s.
WLATMO should furnish a certificate every month to the bank certifying that the bank account of the CRA’s and the franchise agents of the WLATMO’s have been examined and the amounts being withdrawn from their bank accounts has been reconciled with the amount of cash deposited in the ATM’s of the WLATMO’s

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.
Such commission agent or trader has to intimate the banking company or co-operative society or post office his account number through which he wishes to withdraw cash in excess of Rs 1 crore in the previous year along with his PAN and the details of the previous year
Such commission agent or trader has certified to the banking company or co-operative society or post office that such withdrawal is for the purpose of making payments to the farmers on account of purchase of agriculture produce and the banking company or co-operative society or post office
Such commission agent or trader has ensured that the PAN quoted is correct and the commission agent or trader is registered with the APMC, and for this purpose necessary evidences have been collected and placed on record.

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 RBI and its franchise agent for the purposes of:-
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 RBI or
Disbursement of inward remillances to the recipient benefiCiaries in India in cash under Money Transfer Service Scheme (MFSS) of the RBI
A certificate should be furnished by the authorised dealers and their franchise agent and sub-agent, and the Full-Fledged Money Changers (FFMC) and their franchise agent to the bank that withdrawal is only for the purposes specified above and the directions or guidelines issued by the RBI have been adhered to.

Illustrations to understand Section 194N better

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 Withdrawal	Withdrawal from saving account	Withdrawal from current account	TDS under Section 194N
2019-2020	50,00,000	1,05,00,000	[50 lakhs + 1.05 crore – 1 crore] * 2% = 1,10,000
01.05.2020	15,00,000	10,00,000	No TDS
Post 01.07.2020	15,00,000	10,00,000	[15 lakhs + 10 lakhs – 20 lakhs] * 2% = 10,000
Post 01.07.2020	25,00,000	1,15,00,000	[25 lakhs + 115 lakhs – 1 crore] * 5% = 2,00,000