Site iconSite icon SAG Infotech Official Tax Blog Upto 20% Off on Tax Software for You

Introduction & Applicability of TDS Section 194N on Cash Withdrawal

Section 194N TDS on Cash Withdrawal

Introduction of TDS Section 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 fulfil 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 withdrawals exceeding certain threshold limits.

Latest Update in Section 194N Under TDS

The Objective of Section 194N Under TDS

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.

Changes in Section 194N Under TDS

The changes are done in section 194N from the FY 2020-21 to be applicable from 1st July 2020:

Certain conditions for reduced TDS deduction under section 194N:

Description – Finance Bill (No. 2), 2019 Dated 5th July 2019

Applicable to an entity who is responsible for paying a sum or aggregate of the sums in cash exceeding Rs. 1 Crore to any individual (recipient) during the previous year. The entity shall deduct the amount equal to 2% of the total sum from the recipient’s authorized account as income tax.

‘The Entity’ may be:

Recommended: A Brief Study of Newly Added TDS Section 194M

The sub-section of the law shall not apply to payment made to:

Summary of Analysis TDS Section 194N

To Be Noted: The account from which the cash is withdrawn must be in the name of the Recipient. (i.e. the account holder and the recipient must be the same).

Instances of Applicability of Section 194N Under TDS:

Instance 1: An account holder in the State Bank of India has already withdrawn Rs. 99,50,000/- during the year. He further takes out Rs. 2,00,000/- during the month of March then TDS will be applicable only on Rs. 1,50,000 which is in excess of Rs. 1 Crore. Net payment to the recipient will be Rs. 1,97,000.

Instance 2: An account holder in State Bank of India has already withdrawn Rs. 1,00,00,000/- during the year. He issued a bearer cheque of Rs. 5,00,000/- in the name of his friend payable in cash. In such a case no TDS shall be deducted even if the amount of withdrawal exceeds Rs. 1 Crore as the account holder and the recipient are not the same.

All types of bank accounts maintained by the bank come under the criterion of Rs. 1 Crore.

For example, if the recipient holds a Current Account as well as an Overdraft Account with the same bank, then the limit is applied to the aggregate sum withdrawn from both accounts. Further, if the recipient holds an account in branches of the same bank available throughout the country thereon the limit is applicable on the aggregate sum withdrawn from different branches of the same bank.

Read Also: Complete Information on Section 194C for TDS on Payment to Contractors

If the recipient holds accounts in different banks and withdraws in excess of Rs. 1 Crore from different bank accounts the condition may skip the applicability of the provision.

Advantages of TDS Section-194N

Challenges Related to the Execution

The only hurdles which may come in the path of implementation of this section will be: –

Exit mobile version