Table of Contents
1. Understanding Section 194N & TDS on Cash Withdrawal
2. What is Section 194N?
3. Why was Section 194N Introduced?
4. Rate of TDS Under Section 194N
5. What is TDS Required to be Deducted u/s 194N?
6. Who is Responsible for Deducting TDS u/s 194N?
7. When is Section 194N Not Applicable?
8. How to Claim a Refund of TDS Deducted u/s 194N?
9. FAQs
Understanding Section 194N – TDS on Cash Withdrawal
Section 194N of the Indian Income Tax Act, introduced in the Union Budget 2019, mandates the deduction of TDS (Tax Deducted at Source) on cash withdrawals exceeding a specified limit in a financial year. This section aims to discourage large cash transactions and promote a digital economy.
What is Section 194N?
Section 194N is applicable when cash withdrawals from a bank, cooperative bank, or post office exceed Rs 1 crore in a financial year. This section covers withdrawals by various taxpayers, including:
- Individuals
- Hindu Undivided Families (HUFs)
- Companies
- Partnership firms or LLPs
- Local authorities
- Associations of Persons (AOPs) or Body of Individuals (BOIs)
The section mandates that the payer (such as banks or post offices) must deduct TDS on the amount exceeding Rs 1 crore in a financial year. For example, if a person withdraws Rs 1.2 crore in a year, TDS will be deducted on the Rs 20 lakh exceeding the Rs 1 crore threshold.
Why was Section 194N Introduced?
Section 194N was introduced to curb the circulation of black money and promote digital transactions. By levying TDS on large cash withdrawals, the government aims to reduce cash transactions, thereby encouraging businesses and individuals to use digital payment methods.
Rate of TDS Under Section 194N
The TDS rate under Section 194N depends on whether the individual has filed income tax returns (ITR) for the previous three assessment years:
- If ITRs have been filed: TDS is deducted at 2% on the amount exceeding Rs 1 crore.
- If ITRs have not been filed: TDS is deducted at 2% on amounts between Rs 20 lakh and Rs 1 crore, and at 5% on amounts exceeding Rs 1 crore.
For instance, if an individual who hasn't filed ITRs for the last three years withdraws Rs 1.5 crore, TDS will be deducted at 2% on Rs 80 lakh (the amount between Rs 20 lakh and Rs 1 crore) and at 5% on Rs 50 lakh (the amount exceeding Rs 1 crore).
What is TDS Required to be Deducted u/s 194N?
The payer is responsible for deducting TDS under Section 194N on the amount exceeding the specified threshold. For example, if Rs 1.5 crore is withdrawn in a financial year, TDS will be deducted on Rs 50 lakh.
Who is Responsible for Deducting TDS u/s 194N?
The responsibility to deduct TDS under Section 194N lies with:
- Any bank (private or public sector)
- A cooperative bank
- A post office
When is Section 194N Not Applicable?
Section 194N does not apply in certain cases, such as:
- Withdrawals by the government
- Withdrawals by banks or cooperative banks
- Withdrawals by business correspondents of a banking company
- Withdrawals by white-label ATM operators
- Payments made to traders under the Agriculture Produce Market Committee (APMC)
- Any other person notified by the government
How to Claim a Refund of TDS Deducted u/s 194N?
If TDS is deducted under Section 194N and the taxpayer's total income is below the taxable limit, they can claim a refund by filing an income tax return. It's important to note that the refund will only be processed if the ITR is filed within the stipulated time.
FAQs
How to avoid TDS under Section 194N?
To avoid TDS under Section 194N, ensure that your cash withdrawals in a financial year do not exceed the specified threshold of Rs 1 crore. Additionally, regularly file your income tax returns to benefit from higher TDS limits.
Is TDS under Section 194N refundable?
Yes, TDS deducted under Section 194N can be claimed as a refund when filing your income tax return, provided your total income is below the taxable limit.
What is the percentage of TDS under Section 194N?
The TDS rate is 2% on cash withdrawals exceeding Rs 1 crore in a financial year. If the taxpayer has not filed ITRs for the last three years, the rate is 2% on withdrawals between Rs 20 lakh and Rs 1 crore, and 5% on amounts exceeding Rs 1 crore.
What is the limit of Section 194N income tax?
The TDS under Section 194N applies to cash withdrawals exceeding Rs 1 crore in a financial year. The limit for individuals who haven't filed ITRs for the last three years is Rs 20 lakh.
How do I check my Section 194N applicability?
You can check your applicability under Section 194N by reviewing your total cash withdrawals during the financial year. If your withdrawals exceed Rs 1 crore, or Rs 20 lakh if you still need to file ITRs, TDS under Section 194N will apply.
Can we claim TDS deducted under Section 194N?
Yes, you can claim the TDS deducted under Section 194N while filing your income tax return. The deducted TDS will be refunded if your total income is below the taxable limit.
For more details on TDS under Section 194N and other tax-related queries, contact ADCA, one of the leading chartered accountants firms in Bangalore. We provide end-to-end solutions for all your GST, tax, accounting, and CFO needs.
