Section 194N provision
As per this amended Section, if an assessee has not filed Income Tax Return (ITR) for the last three financial years, then cash withdrawal from his/her savings or current bank account will attract TDS if the total amount withdrawn in a financial year exceeds Rs 20 lakh / Rs. 1 crore, as the case may be.
Earlier, through the Union Budget of 2019, Section 194-N was inserted for TDS on cash withdrawal of amounts exceeding the limit of Rs. 1 crore. In the budget of 2020, this limit of Rs. 1 crore was decreased to Rs. 20 lakhs.
TDS Rates on Cash Withdrawal
Aggregate Cash Withdrawal
in a Financial Year
TDS Rates, if ITR’s of last
3 years filed
TDS Rates, if ITR’s of last
3 years not filed
Up to Rs. 20 Lacs
Rs. 20 Lacs – Rs. 1 crore
Above Rs. 1 crore
If the person does not furnish his PAN while withdrawing money from the bank, then a higher TDS of 20% shall apply.
Applicability of Section 194-N
The newly amended Section 194N came into force on 1st July, 2020 and is applicable to the following:
– Hindu Undivided Family
– Partnership or LLP
– Local Authority
– Association of Persons
– Body of Individuals
– Banks (Public or Private)
– Co-operative Banks
– Post Offices
If the assess has accounts in two banks, then he can withdraw Rs. 20 Lacs/1 crore from each bank.
Non Applicability of Section 194N
This Section does not apply to:
– The Government;
– Any banking company or co-operative society engaged in carrying on the business of banking or a post office;
– Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
– Any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007):
– Any other person notified by the government.
When will the TDS be deducted?
TDS will be deducted by the payer while making the cash payment over and above Rs. 20 lacs / Rs. 1 crore in a financial year to the payee. In cases, the payee withdraws a sum of money on regular intervals, the payer will have to deduct TDS from the amount once the total sum withdrawn exceeds Rs. 20 lacs / Rs. 1 crore in a financial year.
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– TDS shall only be deducted on amount exceeding Rs. 20 lacs / Rs. 1 crore.
For instance, if you have withdrawn Rs. 30 lacs, then TDS shall be deducted on Rs. 10 lacs only, and not on total Rs. 30 lacs.
– The amount deducted as TDS shall be refunded or used against your tax liability at the time of filing of Income Tax Return. It can be done so only for the financial year in which the tax has been deducted at source. The same was clarified by CBDT through Notification.
– The tax deducted under section 194N shall not be treated as income of the person withdrawing cash. The Finance (No. 2) Act, 2019 has amended section 198 to provide that sum deducted under section 194N shall not be deemed as income.
– The conditions of filing Income Tax Return is for all last 3 financial years. If you have filed the ITR for only 1 or 2 years, then the rate of TDS shall be 2% for withdrawing cash above Rs. 20 lacs and below Rs. 1 crore and 5% for withdrawing cash above Rs. 1 crore.
– The objective of TDS on cash withdrawal is to discourage cash payments.
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