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Understanding the section 194N better

4 Oct,2019

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What is Section 194N?

Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn from a particular payer in a financial year.

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

The tax will be deducted by the payer while making payment to any individual in cash from a taxpayer’s bank account on the amount in excess of Rs 1 crore.

The limit of Rs 1 crore will be applicable to the cash payments/withdrawals made during the FY 2019-20. The provisions of Section 194N will be applied to the payments made on or after 1 September 2019.

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withdraws a sum of money on regular intervals, the payer will have to deduct TDS from the amount, once the total sum withdrawn exceeds Rs 1 crore in a financial year.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withdraws Rs 99 lakh in the aggregate in the financial year and in the next withdrawal, an amount of Rs 1,50,000 is withdrawn, the TDS liability is only on the excess amount of Rs 50,000.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

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. Thus, in the above example, TDS would be on Rs 50,000 at 2% i.e. Rs 1,000.

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