Section 194N of Income Tax:
- As per the provision this section of income tax is applicable if cash ash withdrawals
from the bank account during a financial year is more than Rs 1 crore. - This section is applicable to cash withdrawals of all sums of money or an aggregate sum from a particular bank in a financial year.
Key Note- The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not per the taxpayer’s account.
Who is eligible for Deduction of TDS u/s 194N ?
The following persons is required to TDS for payment cash under the section 194N
- Any bank (private or public sector)
- A co-operative bank
- A post office
Not applicability of section 194N:
Under this section 194N is not applicability to payees which is mentioned below
- 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)
- Trader of APMC paying to the farmers.
- Any other person notified by the government
Rate of TDS u/s 194N:
Under this section 194N the payer need to required TDS rate @2% on the cash withdrawals if cash withdraw exceed Rs 1 crore in a financial year .
Special provision for Individual:
In case of individual, cash withdrawal is made and not filed the return for the 3 years in immediately preceding the year, limit is reduced to Rs:20lakhs.
TDS rate is applicable for above case
- 2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore
- 5% for withdrawal exceeding Rs 1 crore
Time of deduction of TDS:
- The payer should deduct TDS at the time of payment of cash over and above Rs 1 crore in a financial year to the payee.
- If the payee withdraws a sum of money at regular intervals, the payer will have to deduct TDS from the amount once the total sum withdrawn exceeds Rs 1 crore in a financial year.
Example-1
Mr Santosh has made the following withdrawals during the financial year 2021-22. He has not filed his ITR for the financial year-2018-19, 2019- 20, 2020-21 and that the due date for filing of return for these years has expired.
| Date | Cash Withdrawal (Rs) | Aggregate amount withdrawn(Rs) | TDS Rate | Computation | TDS Deducted (Rs) |
|---|---|---|---|---|---|
| 05/04/2021 | 18 lakh | 18 lakh | 2% | - | - |
| 21/07/2021 | 20lakh | 38 lakh | 2% | (38 lakhs -20 lakhs) x2% | 36,000 |
| 25/08/2021 | 25 lakh | 63 lakh | 2% | 25 lakhs x 2% | 50,000 |
| 04/09/2021 | 40 lakh | 1.03 crore | 5% | (37lakhs x 2% )+(3lakhs X 5% ) | 89,000 |
| 18/10/2021 | 50 lakh | 1.53 crore | 5% | (50 lakhs x 5%) | 2,50,000 |
Example-2
Mr Raj has withdrawn cash from the following banks during the financial year–
| Bank Name | Cash Withdrawn during the FY 2021-22 (in Rs) |
|---|---|
| Kotak Bank | 70 Lakhs |
| HDFC Bank | 40 Lakhs |
| SBI Bank | 25 Lakhs |
In the above example, No bank is required to deduct TDS under Section 194N as the limit of Rs 1 crore is not exhausted in any of the banks.
Because, the limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not per the taxpayer’s account.
Example-3
Mr Raj maintains a savings and current account with XYZ bank. His transactions during the FY 2021-22 are as follows:
| Date of cash withdrawn | Withdrawal from the saving account (in Rs) | Withdrawal from the current account (in Rs) |
|---|---|---|
| 01-06-2021 | 6,00,000 | 20,00,000 |
| 16-07-2021 | 2,00,000 | 20,00,000 |
| 18-08-2021 | 3,00,000 | 15,00,000 |
| 01-10-2021 | 80,000 | 35,00,000 |
| 03-11-2021 | 1,50,000 | 10,00,000 |
| Total | 13,30,000 | 1,00,00,000 |
TDS is applicable on the above example =[ (13,20,000+ 1,00,00,000)- 1,00,00,000] x 2% = Rs: 26,400
