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2022

TDS on Cash Withdrawal u/s 194N

TDS on Cash Withdrawalu s 194N

Keeping in mind the blueprint of the cashless economy, the BJP-led government is frequently introducing reforms in the laws to achieve the goal. Starting with demonetization, the government has come up with new laws in the constitution which fulfill the purpose of the cashless economy in the nation. Section 194N recently invited in the constitution is yet another move towards promoting digital payments and eradicating cash transactions. The section concentrates on imposing TDS on cash withdrawal exceeding certain threshold limits.

The section serves the objective of eliminating large cash withdrawals from bank accounts and phasing out black money from India. Mentioned below is the detailed scrutiny of the section to give you an idea of its functionality.

Liability to Deduct TDS:

  • Under Section 194N, following entitiesare required to deduct TDS on amount of cash withdrawn from one or more accounts maintained by the recipient if it exceeds the prescribed threshold limit in a financial year.
  • A banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
  • A co-operative society engaged in carrying on the business of banking; or
  • A post office.

Deductee/Payee under Section 194N:

Provisions of Section 194N are applicable to all persons including following:

  • Individual;
  • HUF;
  • Company;
  • Partnership Firm;
  • LLP;
  • Local Authority;
  • AOP/BOI.

Note: The provisions of this section apply to cash withdrawals made by a Non-Resident person also.

TDS Rate and Threshold Limit:

The rate of TDS deduction under this section is 2% or 5% depending on amount of cash withdrawal. Refer to the below table for details:

 

Amount of Cash Withdrawal

Not more than Rs. 20 Lakhs in a FY

More than Rs. 20 Lakhs but up to 1 Crore in a FY

More than Rs. 1 Crore

The person withdrawing cash has filed ITR in at least one of the three previous years.

N/A

N/A

2%

The person withdrawing cash has not filed ITR in any of the three previous years.

N/A

2%

5%

Note: If a person has multiple accounts with a bank/post office/co-operative bank then total cash withdrawal from all accounts cumulatively shall be considered for computation of threshold limit. However, amount of cash withdrawal by a person from his accounts in different banks shall not be aggregated for the purpose of calculating threshold limit. This means each bank shall compute its threshold limit independently and deduct TDS accordingly.

Time of Deduction of TDS:

  • TDS should be deducted at prescribed rates at the time of payment of such sum. Once threshold limit of cash withdrawal is crossed in a given financial year, TDS should be deducted on entire amount of cash withdrawal till date and then after TDS should be deducted on every cash withdrawal till the end of the relevant financial year.

Exemption from Deduction of TDS on Cash Withdrawal:

Certain persons are exempted from the provisions of this section as stated below:

  • Central or State Government
  • Banks
  • Co-op. Banks
  • Post Office
  • Banking correspondents
  • White Label ATM Operators:
    • A White Label ATM Operator is an entity which is engaged in the business of ATM machine operations for banks.
    • They set-up, own and operate ATM machines on behalf of banks.
    • Such Non-bank ATM operators are authorized under the Payment & Settlement Systems Act, 2007 by the Reserve Bank of India (RBI).
    • Examples: BTI Payments Pvt. Ltd., Tata Communications Payment Solutions Ltd., Hitachi Payment Services Pvt. Ltd. and Vakrangee Limited.
  • Any entity indulged in banking related business working in accordance with the guidelines prescribed by the Reserve Bank of Indiaunder the Reserve Bank of India Act, 1934.
  • Registered commission agent or trader, operating under Agriculture Produce Market Committee (APMC):
    • TDS is not required to be deducted on payments made to the Registered Commission Agent or Trader, operating under Agriculture Produce Market Committee (APMC) who has certified that the cash withdrawal is for the purpose of making payments to the farmers on account of purchase of agriculture produce.
  • Other persons notified by the Govt. in consultation with the RBI.

 

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Financial Management