As newly inserted section in the chapter of TDS requires tax to be deducted at source if any specified person withdraws Rupees more than 1 Crore from any banking company, co-operative bank or post office. This section came in force on September 1st, 2019 in order to discourage cash transactions and move towards cash-less economy.
Who is required to deduct tax?
If any person withdraws more than 1 crore Rupees from any banking company, co-operative bank or post office then such banking company, co-operative bank or post office is required to deduct tax at source.
What is the rate at which tax required to be deducted?
If the aggregate of amounts or amount exceeds more than 1 Crore during the previous year then tax will be deducted @2% on the amount exceeding 1 Crore.
When tax shall be deducted?
TDS u/s 194N shall be required to be deducted only if the aggregate of amounts or amount of cash withdrawal during the previous year by the person from one or more of his bank or post office account, as the case may be, exceeds Rs. 1 crore. This is to be noted, the TDS shall be required to be deducted only on the amount exceeding 1 Crore.
For Example: If a person withdraws 1.5 Crore from any of his account(s), then the bank or post office, as the case may be, shall be required to deduct tax at source only on the exceeding amount i.e. 50 Lacs in the present case at the rate of 2%. TDS would be 50*2%= 1 Lacs.
What is the date of applicability of Section 194N?
Section 194N is made applicable from September 1, 2019. Hence, every bank or post office shall be required to deduct TDS on cash withdrawal made on or after September 1, 2019. However, Section 194N provides that the tax shall be required to be deducted only when the aggregate amount of cash withdrawn by a person during the previous year, from one or more of his bank or post office account, exceeds Rs. 1 Crore. Hence, for the purpose of computation of threshold limit of Rs. 1 crore, the total amount of cash withdrawn during the previous year shall be considered.
To clarify further, the CBDT has issued a Press Release, Dated 30-08-2019 to provide that any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under Section 194N. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N shall be counted from 1st April, 2019. Hence, if a person has already withdrawn Rs. 1 crore or more in cash upto 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the 2% TDS shall apply on all subsequent cash withdrawals made on or after 1st September 2019.
When tax shall not be required to be deducted?
No tax shall be required to be deducted if cash withdrawal from bank or post office is made by the following recipients:
- Central or State Government
- Banks
- Co-op. Banks
- Post Office
- Banking Correspondents
- White label ATM operators
- Other persons notified by the Govt. in consultation with the RBI.
As Section 194N has been inserted in Income-tax Act with effect from 01-09 2019, the tax shall be required to be deducted only after the said date. However, for the purpose of calculation of threshold limit of Rs. 1 crore, the aggregate amount of cash withdrawn from one or more accounts during the previous year shall be considered.