Section 194N: Payment of certain amount in Cash
Section 194N was introduced in 2019 Budget. The aim was to promote Cash-Less and Digital Economy. A TDS of 2% on cash withdrawal in excess of 1 crore was levied. In Budget 2020, the limit of 1 crore was reduced to 20 lakhs for Non-filers of Income tax return for past 3 years.
Section in details:
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Payer shall deduct 2% as Income tax on CASH payment made to ANY recipient in excess of 1 crore, individually or in aggregate, in a Financial Year.
Payers means any of the following:
- Banking Company
- Cooperative Societies – Banking Business
- Post Office
Applicable to all type of Recipient unless specifically exempted.
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Recipient who has not filed their return of Income for 3 immediately preceding years and due date for filing return under section 139(1) has expired for all those years:-
a) If Amount withdrawn exceeds 20 lakh but does not exceed 1 crore= 2% shall be deducted by Payer in excess of 20 lakh.
b) Amount withdrawn exceeds 1 crore = 5% shall be deducted by Payer in excess of 1 crore.
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Recipient Exempt from above provision:
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Government
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Banking Co/Cooperative Society/Post Office
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Business Correspondent of Banking Co/Cooperative Society
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Any white label ATM operator of a Banking Co/Cooperative Society
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As notified by CG
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Case Studies for better Understanding
A) Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
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50 lakhs on 30th Sep,2020
- 80 lakhs on 31st Mar, 2021
Compute TDS u/s 194N in following cases:
i) Mr. X has filed its tax return for the 3 preceding year.
ii)Mr. X has NOT filed its tax return for the 3 preceding year.
Solution
ABC Bank Ltd shall deduct TDS u/s 194N as follows:-
i) TDS = 60k (30 lakhs*2%)
ii)TDS = 3.1 lakhs (80 lakhs*2% + 30 lakhs*5%)
B) Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
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50 lakhs on 30th Sep,2020 from Branch A
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80 lakhs on 31st Mar, 2021 from Branch B
Compute TDS u/s 194N in following cases:-
i) Mr. X has filed its tax return for the 3 preceding year.
ii)Mr. X has NOT filed its tax return for the 3 preceding year.
Solution: Same as A above
The limit is considered at a Bank level and not at a branch level.
C) Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
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50 lakhs on 30th Sep,2020 from Saving A/c
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80 lakhs on 31st Mar, 2021 from Current A/c
Compute TDS u/s 194N in following cases:-
i) Mr. X has filed its tax return for the 3 preceding year.
ii) Mr. X has NOT filed its tax return for the 3 preceding year.
Solution: Same as A above
The limit is considered at a Bank level and not at Account level.
D) Mr. X made following withdrawals in Cash during FY 2021.
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50 lakhs on 30th Sep,2020 from ABC Bank Ltd
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80 lakhs on 31st Mar, 2021 from XYZ Bank Ltd
Compute TDS u/s 194N in following cases:
i) Mr. X has filed its tax return for the 3 preceding year.
ii) Mr. X has NOT filed its tax return for the 3 preceding year.
Solution
i) The limit of 1 crore is with respect to each bank. Hence, TDS is not required to be deducted u/s 194N as the amount does not exceed 1 crore in each bank.
ii) TDS u/s 194N will be as follows:
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TDS by ABC Bank Ltd – 60k (30 lakhs*2%)
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TDS by XYZ Bank Ltd – 1.2 lakhs (60 lakhs*2%)
E) Whether the credit is available for tax deducted under section 194N?
Solution: Yes, credit will be available to the account holder only for the previous year in which such deduction was made. Rule 37BA (3A)
However, the carryforward of credit is not allowed and the same cannot be transferred to another person
F) Will answer to any of the above question will change if Mr.X withdraws Cash for Business Purposes??
Solution: No. The purpose of withdrawal is Irrelevant
G) ABC Bank Ltd make Cash payment of 2 crore to XYZ Bank Ltd? Compute TDS u/s 194N?
Solution: TDS will not be deducted u/s 194N as Recipient (XYZ Bank Ltd) is a Banking Company.
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