What Is Section 194N? TDS Rate Under Cash Withdrawals

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What Is Section 194N ???

Section 194N of the Income Tax Act states that TDS will be applied to cash withdrawals made by any individual more than 1 Crore in a financial year. TDS is normally calculated at the rate of 2% on every cash withdrawal.

 What is TDS on cash withdrawal?

 The government had made the provision of levying 2 percent TDS on cash withdrawals exceeding Rs 1 crore in the Budget. If a person has already withdrawn Rs 1 crore or more in cash up to August 31, 2019, in the current fiscal, the two percent TDS shall apply on all subsequent cash withdrawals.

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)
Section 194N of the Income Tax Act states that Tax Deducted at Source (TDS) will be levied on cash payments in excess of INR 1 Crores in aggregate made during a particular year, by a bank, co-operative bank or post-office, to any person from an account maintained by the recipient.

Who Will Deduct TDS Under Section 194N?

The person (payer) making the cash payment will have to deduct TDS under Section 194N. Here is the list of such persons:
  • Any bank (private or public sector)
  • A co-operative bank
  • A post office
There are certain categories of person (payee) to whom the provision of this section will not apply. They are listed below:
  • Any government body
  • Any bank including co-operative banks
  • Any business correspondent of a banking company
  • Any white label ATM operator of any bank

Importance Of TDS Under Section 194N?

TDS will be deducted by the payer while making the cash payment over and above Rs 1 crore in a financial year to the payee. If 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withdraws a sum of money on regular intervals, the payer will have to deduct TDS from the amount, once the total sum withdrawn exceeds Rs 1 crore in a financial year. Further, the TDS will be done on the amount exceeding Rs 1 crore. For example, if a person withdraws Rs 99 lakh in the aggregate in the financial year and in the next withdrawal, an amount of Rs 1,50,000 is withdrawn, the TDS liability is only on the excess amount of Rs 50,000.

Rate Of TDS Under Section 194N-

TDS will be deducted at the rate of 2% on cash withdrawals in excess of Rs. 1 crore in an FY (w.e.f. September 1st, 2019).

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