Section 194N: Payment of certain
amount in Cash
I'm a paragraph. Click here to add your own text and edit me. It's easy.
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.
Let see the section in details:
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.
Applicable to Only following Payers:
-
Banking Company
-
Cooperative Societies – Banking Business
-
Post Office
Non-Filer of Income Tax Return
In case of 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:-
-
If Amount withdrawn exceeds 20 lakh but does not exceed 1 crore - 2% shall be deducted by Payer in excess of 20 lakh.
-
Amount withdrawn exceed 1 crore = 5% shall be deducted by Payer in excess of 1 crore.
Recipient Exempt from above provision:
-
Government
-
Banking Co/Cooperative Society/Post Office
-
Business Correspondent of Banking Co/Cooperative Society
-
Any white label ATM operator of a Banking Co/Cooperative Society
-
As notified by CG
Case Studies for better Understanding
Case 1: Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
-
50 lakhs on 30th Sep,2020
-
80 lakhs on 31st Mar, 2021
Compute TDS u/s 194N in following cases:
-
Mr. X has filed its tax return for the 3 preceding year.
-
Mr. X has NOT filed its tax return for the 3 preceding year.
Answer
ABC Bank Ltd shall deduct TDS u/s 194N as follows:-
-
TDS = 60k (30 lakhs*2%)
-
TDS = 3.1 lakhs (80 lakhs*2% + 30 lakhs*5%)
Case 2: Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
-
50 lakhs on 30th Sep,2020 from Branch A
-
80 lakhs on 31st Mar, 2021 from Branch B
Compute TDS u/s 194N in following cases:-
-
Mr. X has filed its tax return for the 3 preceding year.
-
Mr. X has NOT filed its tax return for the 3 preceding year.
Answer
The limit is considered at a Bank level and not at a branch level. The answer will remain same as above.
Case 3: Mr. X made following withdrawals in Cash from ABC Bank Ltd. during FY 2021.
-
50 lakhs on 30th Sep,2020 from Saving A/c
-
80 lakhs on 31st Mar, 2021 from Current A/c
Compute TDS u/s 194N in following cases:-
-
Mr. X has filed its tax return for the 3 preceding year.
-
Mr. X has NOT filed its tax return for the 3 preceding year.
Answer
The limit is considered at a Bank level and not at Account level. The answer will remain same as above.
Case 4: Mr. X made following withdrawals in Cash during FY 2021.
-
50 lakhs on 30th Sep,2020 from ABC Bank Ltd
-
80 lakhs on 31st Mar, 2021 from XYZ Bank Ltd
Compute TDS u/s 194N in following cases:
-
Mr. X has filed its tax return for the 3 preceding year.
-
Mr. X has NOT filed its tax return for the 3 preceding year.
Answer
-
TDS is not required to be deducted u/s 194N as the amount does not exceed 1 crore in each bank.
-
TDS u/s 194N will be as follows:
-
TDS by ABC Bank Ltd – 60k (30 lakhs*2%)
-
TDS by XYZ Bank Ltd – 1.2 lakhs (60 lakhs*2%)
Case 5: Whether the credit is available for tax deducted under section 194N?
Yes, credit will be available to the account holder only for the previous year in which such deduction was made. Rule 37BA (3A) The credit cannot be carryforward or transferred to another person.
Case 6: Will answer to any of the above question will change if Mr.X withdraws Cash for Business Purposes??
No. The purpose of withdrawal is Irrelevant
Case 7: ABC Bank Ltd make Cash payment of 2 crore to XYZ Bank Ltd? Compute TDS u/s 194N?
Answer
TDS will not be deducted u/s 194N as Recipient (XYZ Bank Ltd) is a Banking Company.