TAX DEDUCTION AT SOURCE ( TDS ) ON CASH Withdrawals (Sec. 194N )

TAX DEDUCTION AT SOURCE ( TDS )  ON CASH Withdrawals (Sec. 194N )

The Finance Bill 2020 ( Bill) introduced vide Union Budget 2020-21 is passed in both houses of parliament and one of the amendments which will effect a large number of people is a change in scope of TDS on cash withdrawal under sec 194N of Income Tax Act which amended vide clause 84 of finance Act 2020.

Section 194N of Income Tax 1961

Section 194N for deduction of tax at source (TDS) on cash withdrawals exceeding Rs 1 crore. was introduced by Honourable Finance Minister in Union Budget 2019. This section applies to an aggregate of sums withdrawn from a particular payer in a financial year which means to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two percent of such sum, as income-tax. The Government has introduced Section 194N in the Union Budget 2019 in order to discourage cash transactions in the country and promote the digital economy Which effect from 1st Day of July 2020.

Scope Of Sec. 194N 

he 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 withdrawal more than Rs 1 crore TDS @  5%. Is required to be deducted.

Who will deduct the TDS 

  • Every Banking Company  (Government and Private Banks) 
  • A Co-operative 
  • A post Office 

When TDS deducted 

TDS under Section 194N tax shall be required to be deducted only when the aggregate amount of cash withdrawal during the previous year by a person from one or more of his bank or post office account, as the case may be, exceeds Rs. 20 Lakhs and the said person has not filed his Income Tax Returns for the last three years. Further, the tax shall be required to be deducted only on the amount exceeding Rs. 20 Lakhs

TDS will be deducted by the payer while making the cash payment over and above Rs 1 crore in a financial year to the payee. If the person cash withdrawal at the regular interval the deductee has to deduct TDS once the total sum withdrawal exceeds Rs. 1 Crore    

When TDS shall not be required to Deduct

No tax shall be required to be deducted if cash withdrawal from bank or post office is made by the following recipients:

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

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