Government is motivating to use the digital payments instead of cash. In this direction Government has introduced Income tax section 194N for TDS on Cash withdrawals. It was introduced in union budget 2019, to discourage large cash withdrawals.
What is TDS rate for Cash withdrawal
The TDS rates for cash withdrawal is 2%.
In some cases, rate is 5% if return is not filed for three years.
What is TDS limit for Cash withdrawal
The limit for TDS deduction under section 194N is Rs. 1 Crore. When the aggregate amount of cash withdrawal during the previous year exceeds Rs. 1 crore.
Cash may be withdrawn from one or post office.
It is to be noted that cash limit of Rs. 1 Crore is per bank account.
TDS is deducted on amount which exceeds Rs. 1Cr.
For example, a company having 7 bank accounts with 7 different banks and he can withdraw cash of Rs 1 crore from 7 different banks i.e Rs 7 crores without any TDS.
From 1st July 2020, the scope of 194N has been extended.
If a person has not filed income tax return for three years, then 2% TDS is to be deducted if the cash withdrawal exceeds 20 Lac. And 5% need to be deducted if the cash withdrawal exceeds Rs. 1 Cr.
Example-1 : A company withdraws Rs 80Lakhs on one date and then Rs 60 Lakhs on another date in same financial year, then the aggregate amount withdrawn becomes 1.4 Cr in that particular financial year. Here the liability to deduct tax arises only when the aggregate amount exceeds 1Cr i.e. after the second withdrawal of Rs 60 Lakhs. The amount of TDS will be 40Lakhs x 2% = 80000. (note: tax is to be calculated only on the amount exceeding 1Cr.)
Example-2 : If a company has not filed Income Tax returns for three years, say financial Year – 2017-18, 2018-19 & 2019-20, then any cash withdrawal in FY 20-21 which exceeds Rs. 20 lac, 2% TDS is deducted by bank and 5% TDS if it exceeds 1 Cr.
Who is Liable to deduct TDS on Cash withdrawal
Under section 194N person withdrawing cash is not liable to deduct, but it is liability of Following financial institutions to deduct TDS under section 194N, while disbursing cash.
- Post Office
- Co-operative Banks
- Every Banking Company
To Whom this Section 194N is Applicable
This section is applicable to following Tax Payers:
- A Company
- An Individual
- A partnership firm or an LLP
- A local authority
- An Association of Person (AOPs) or Body of Individuals (BOIs)
- A Hindu Undivided Family (HUF)
It means any person mentioned above withdrawing cash exceeding above limit mentioned in above paragraphs, section 194N will be applicable.
To Whom this Section 194N is not Applicable
TDS is not required to be deducted by cash is withdrawn by below mentioned persons:
- Co-op. Banks
- Post Office
- White label ATM operators
- Central or State Government
- Banking correspondents
- Other persons notified by the Govt. in consultation with the RBI.
Credit for TDS on cash withdrawals
Credit is available for TDS deducted by banks, Post office. The person can claim the credit while filing his income tax return.
Credit is adjusted against the tax liability, if there is not tax liability then refund can be claimed for the TDS amount.
What at the benefits of Section 194N
- Discourage large cash withdrawals.
- Discourages cash Transactions.
- Promotes the digital economy.
- Helps in finding the trail of transactions
Hope I have explained everything about section 194N for TDS on Cash Withdrawals. Please ask your queries in the comments section below.