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Section 194N: TDS on cash withdrawal

In order to discourage cash transaction and a move towards less-cash economy, with effect from 01.09.2019, Finance Act, 2019 had introduced a new section 194N for deduction of TDS at 2% on cash withdrawal from any account maintained with any bank or post office or co-operative society. TDS at the rate of 2% is required to be deducted if cash withdrawal from one or more accounts exceeds Rs. 1 crore during the relevant financial year. Further as per Finance Act, 2020 with effect from 01.07.2020 the above limit of Rs. 1 crore is reduced to Rs. 20 lakh if the cash withdrawer has not filed their income tax return from last 3 financial years. Further different rate of TDS has also been specified for different class of cash withdrawer.

To whom section 194N is applicable?

Section 194N applies to any person, who has withdrawn cash in excess of the limit specified under section 194N from any of their saving or current account. Here any person means individual, Hindu undivided family, partnership firm, company, local bodies, association of person or bodies of individual or any other artificial juridical person.

Who is required to deduct TDS under section 194N?

Following persons are required to deduct TDS under section 194N at time of making payment to cash withdrawer

a. Banking companies

b. Co-operative societies engaged in the business of banking

c. Post offices

What is the cash withdrawal limit specified under section 194N?

Below are the Cash withdrawal limits specified under section 194N. No TDS is required to be deducted if cash withdrawal is less than the specified limits.

With effect from Type of person Limit u/s 194N
01.09.2019 Any person whether have filed income tax return or not Rs 1 Crore
01.07.2020 If person had filed income tax return Rs 1 Crore
If person had not filed income tax return for all the last 3 years Rs 20 Lakh

What is the rate of TDS under section 194N?

TDS under section 194N is required to be deducted at the following rates

With effect from Type of person Withdrawal amount Rate of TDS
01.09.2019 Any person whether have filed income tax return or not Up to Rs 1 Crore Nil
Above Rs 1 Crore 2%
01.07.2020 If person had filed income tax return Up to Rs 1 Crore Nil
Above Rs 1 Crore 2%
If person had not filed income tax return for all the last 3 years Up to Rs 20 Lakh Nil
Above Rs 20 Lakh but up to Rs 1 Crore 2%
Above Rs 1 Crore 5%

Whether TDS deducted under section 194N can be claimed in the income tax return?

Yes, TDS deducted under section 194N can be claimed in the income tax return and can be set off with the final tax liability of a person, if any. Further refund can also be claimed if TDS deducted is more than the final tax liability ascertained in the income tax return.

Is there any person to whom TDS provision of section 194N does not apply?

Yes, if cash is withdrawn by any of the following persons, then no TDS under section 194N is required to be deducted:-

a. A Government.

b. Any banking company or post office or co-operative society engaged in the business of banking.

c. Any business correspondence of a banking company or post office or co-operative society engaged in the business of banking.

d. Any white label automated teller machine operator of a banking company or post office or co-operative society engaged in the business of banking.

e. Any other person which may be notified by the Central Government in consultation with Reserve Bank of India.

Further Central Government in consultation with Reserve Bank of India has notified the following persons to whom above TDS provisions will not apply:-

a. Cash Replenishment Agencies and franchise agents of White Label Automated Teller Machine Operators vide notification no. 68/2019 dated 18.09.2019.

b. Commission agent or trader, operating under Agriculture Produce Market Committee vide notification no. 70/2019 dated 20.09.2019.

c. Full-fledged money changer and authorised dealer of foreign currency vide notification no. 80/2019 dated 15.10.2019.

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