Table of Contents
1. Section 194N of Income tax act, 1961
Tax Deducted at Source (TDS) on cash withdrawal from Banks, Post Offices & Co-operative societies engaged in the banking business.
2. Who should deduct tax under this section?
- Banks
- Post office
- Co-operative society engaged in the banking business
3. Applicability of section 194N
- Tax has to be deducted from the amount of cash withdrawal made by any person in a FY exceeding
- 1 Crore (if the person withdrawing the amount has filed ITR for all or any of the 3 previous AYs)
- 20 Lakhs (if such person has not filed ITR for all 3 previous AYs)
4. Non applicability of TDS under section 194N.
Tax need not be deducted if cash withdrawal is made by the following persons, irrespective of the amount
- Central government or State government.
- Private or public sector bank.
- Co-operative bank.
- Business correspondent of any bank.
- Post office.
- White label ATM (WLA) operator of any bank.
- Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of purchase of agriculture produce.
- Authorized dealers & Full-Fledged Money Changer (FFMC) licensed by RBI &
- Any other person notified by government in consultation with RBI.
5. When is the tax under section 194N deducted?
Tax under this deduction is deducted at the Time of payment. (i.e. at the time of cash withdrawal)
6. At what rate will tax be deducted under section 194N?
| Conditions | Amount of cash Withdrawal | Rate of TDS |
|---|---|---|
| If the person withdrawing the cash has filed ITR for all or any of the 3 previous Assessment years. | In excess of Rs.1 Crore | 2% on cash withdrawals in excess of Rs.1 Crore. |
| If the person withdrawing the cash has not filed ITR for any of the 3 previous Assessment years. | In excess of Rs.20 lakhs but up to Rs.1 Crore. | 2% on cash withdrawals in excess of Rs.20 lakhs. |
| In excess of Rs.1 Crore | 5% on cash withdrawals in excess of Rs.1 Crore. |
7. If a person makes cash withdrawal of Rs.1.25 crores from a bank, is TDS deducted on the entire amount under section 194N?
No, TDS shall not be deducted on the entire amount of Rs.1.25 Crores. TDS shall be deducted only on the amount of cash withdrawal in excess of Rs.1 Crore. i.e. TDS will be deducted only on Rs.25 Lakhs at the rate of 2%.
8. Is the provisions of section 194N applicable to Non-Residents?
Yes, Section 194N is applicable to all persons including Non-Residents.
9. If a person makes a cash withdrawal of Rs.60 lakhs from HDFC Bank and at the same time he makes a cash withdrawal of Rs.75 lakhs from Post office. Should tax be deducted under section 194N on the aggregate amount of Rs. 1.35 crores? If yes, who should deduct tax?
- Assuming the person withdrawing the cash has filed the ITR for the immediately preceding 3 years.
- The threshold limit or Rs. 1 crore will be applicable in respect of each of the financial institution separately.
- In the given case, since the cash withdrawals made from the bank and post office does not exceed Rs. 1 crore respectively, tax under section 194N need not be deducted.
- However, if the person withdraws Rs. 60 lakhs and Rs. 75 lakhs in cash from HDFC at different dates in the same FY, TDS under section 194N will be applicable since the aggregate amount of cash withdrawal in the FY exceeds Rs. 1 crore. In this case, HDFC will deduct tax at the rate of 2% on Rs. 35 lakhs (Amount exceeding Rs. 1 crore)