The threshold limit for TDS on cash withdrawals under section 194N is reduced to Rs 20 lakh, specifically for person who have not filed their income tax returns in last 3 financial years. Accordingly, the TDS of 2% is required to deducted for such taxpayers if withdrawing cash more than Rs 20 lakh in a financial year.

TDS under Section 194N

The cash withdrawals of Rs.1 crore or more in a financial year attracts tds deduction under section 194N of Income tax act. This threshold limit stands reduced to Rs. 20 lakhs for taxpayers, who have not filed income tax in previous three financial years. As such the tds @ 2% with be deducted from the person withdrawing cash beyond Rs. 20lakhs in a financial year.

The basic premise of tds under section 194N is to discourage cash payments and encourage online or bank transactions which helps in determining the spend behavior and helps in identifying tax evasion.

The tds under section 194N is applicable on taxpayers listed as below.

  •  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)
  • Any bank (private or public sector)
  • A co-operative bank
  • A post office

The limit however is not applicable on individual cumulative of all accounts, but is applicable on each bank or post office where the account is maintained. To understand it better, a person with having 4 accounts i.e 3 in 3 different banks and one in post office may withdraw an amount upto Rs. 4 crores from 4 different institutions. After this limit is crossed, the tds will be deducted under section 194N. As such, it become the responsibility of a bank making a cash payment of Rs 1 crore or more in a financial year to one of its account holder to deduct TDS under section 194N.

Though there is still a ambiguity about the cash withdrawal by third party through a bearer cheque however a limit of Rs. 10,000 per day is applicable (either through single or multiple transactions) beyond which business cannot book it as a business expenditure.

The said provision is applicable from September 01, 2019 and limit for cash payment or withdrawals are applicable form FY 2019-20. However, provision of tds deduction for payment beyond Rs. 20 lakhs is introduced in the budget of FY 2020.

Who is liable to deduct TDS under Section 194N

Following are the person/institution making the cash payment is required to deduct TDS under Section 194N.

  • Any bank (private or public sector)
  • A co-operative bank
  • A post office

However, following are the categories of person (payee) to whom the provision of this section may not apply

  • 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

Implication and Rate of TDS under section 194N

The TDS under section is required to be deducted only above the amount of Rs. 1 crore and above as such no tds is required to deducted until the withdrawals remains below 1 crore. However, on crossing 1 crores the exceeding amount is subject to tds. In case where the last withdrawal doesn’t cumulates to 1 crores, in current withdrawal, only the amount in excess of Rs. 1 crore is liable to be deducted as tds under section 194N. For example after withdrawing 99.50 lakhs in a financial year, if a person withdraws only 1 lakh, the amount excess of cumulative 1 crore i.e 50,000 is liable to be deducted as tds @ 2% i.e Rs. 1000.

It is important to Note that the person withdrawing cash cannot avail 15G/15H to the bank and also cannot apply for lower deduction certificate. Moreover, for the purpose of calculation of Rs. 20 lakhs limit, the immediate three preceding are to be taken only if the date of return u/s 139(1) has not expired. It is important to note that Section 194N is only applicable where an cash withdrawal are from one or more accounts maintained with the same bank or post office. In case of multiple account with different banks, the deduction is per bank or per post office.