TDS ON CASH WITHDRAWAL : SECTION – 194N OF INCOME TAX ACT, 1961

The budget 2020 has reduced the threshold limit for TDS to Rs 20 lakh for taxpayers who have not filed their income tax returns for past three years. Such taxpayers withdrawing cash in excess of Rs 20 lakh have to pay 2% as TDS. Earlier, the Union Budget 2019 has introduced Section 194N for deduction of tax at source (TDS) on cash withdrawals exceeding Rs 1 crore to discourage cash payments. Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year.

Applicability

The section will apply to withdrawals made by any taxpayer including:

·         An Individual

·         A Hindu Undivided Family (HUF)

·         A Company

·         A partnership firm or an LLP

·         A local authority

·         An Association of Person (AOPs) or Body of Individuals (BOIs)

The following payers are covered under this section:

·         Any bank (private or public sector)

·         A co-operative bank

·         A post office

Non applicability :

·         Any government body

·         Any bank including co-operative banks

·         Any business correspondent of a banking company (including co-operative banks)

·         Any white label ATM operator of any bank (including co-operative banks)

·         Any other person notified by the government

Rate of TDS :

The payer will have to deduct TDS at the rate of 2% on the cash payments/withdrawals of more than Rs 1 crore in a financial year under Section 194N. In case the individual receiving the money who has not filed income tax return for three years immediately preceding the year, then the TDS is 2% on the cash withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and 5% for withdrawal exceeding Rs 1 crore.