Section 194N – Deduction of TDS on cash withdrawal in excess of 1 crore

Section 194N – Deduction of TDS on cash withdrawal in excess of 1 crore

Section 194N provides for TDS on cash withdrawal in excess of 1 crore @ 2% by a by a banking company or cooperative bank or post office.

The proposed Section 194N reads as under : –

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 percent. of sum exceeding one crore rupees, as income-tax:

Non applicability of Section 194N – Deduction of TDS on cash withdrawal in excess of 1 crore

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;

The memorandum, explaining the provisions of Finance (No. 2) Bill, 2019 , provides the following reasoning behind insertion of Section : –

In order to further 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 of TDS 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. It is proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision. It is proposed to empower the Central Government to exempt other recipients, through a notification in the official Gazette in consultation with the Reserve Bank of India. This amendment will take effect from 1st September, 2019

TDS Rate u/s 194N

TDS shall be deducted as  an amount equal to 2% of such cash withdrawn exceeding one crore rupee.