Discussion on Section 194N – TDS on cash withdrawal exceeding 1 crore

In order to discourage cash transactions and move towards less cash economy, it is proposed to insert a new section 194N in the Act to provide for levy ofTDS at the rate of two per cent on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

Text of Section is given below:

Section 194N – Every person, being,

(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

(ii) a co-operative society engaged in carrying on the business of banking; or

(iii) a post office,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent. of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to,

(i) the Government;

(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

(iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India..

Some Conclusions:

1. These provisions are applicable on a banking company or a co-operative society engaged in carrying on the business of banking; or a post office, who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person.
2. It is applicable to payments in cash in excess of Rs 1 crore during a previous year from 1st April to 31st March.
3. How to Calculate TDS:
   • Suppose on 1st December 2019 Mr A has withdrawn Rs. 90,00,000/-.
   • Now on 2nd February 2020 He withdraws another Rs. 20,00,000/-
   • In this case TDS is Applicable on Rs. 10,00,000 [i.e. Amount in excess of Rs. 1,00,00,000]
4. Presently TDS Deductions get posted to 26AS corresponding to income. So tax Payer would need a bit clarification on this part as TDS deduction under this section is not related to any income.
5. Voluminous with Bank : This new provision will indeed increase work load of banking industry.

What do you say, do mention your comments.

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