Cash Withdrawal- What You Need to Know.

Cash Withdrawal TDS: What You Need to Know – Ca in Udaipur analyzed and understands the implications of Section 194N and adapt your financial practices accordingly.

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

The government enacted laws in the constitution to increase the cashless economy. Section 194N, focuses on the imposition of TDS on cash withdrawals.

Section 194N – Objective

The segment serves the aim of eradicating big cash withdrawals from bank accounts and eradicating black money in India. A thorough examination of the section is listed below to give you an understanding of its features.

On July 5, 2019- in the Union Budget 2019, the Government introduced Section 194N with the objects to reduce the cash transactions in the country and increase the r the digital economy’

To whom Section 194N Applicable:- 

This Section applies to any cash withdrawals made by an individual from a bank account exceeding Rs.1 crore during the financial year. It applies on the withdrawal of all the sum of money or the aggregate of all sums from a bank in a financial year. Taxpayers in this case include –

• Individual,
• HUF,
• Partnership firm/LLP
• Association of Persons (AOP), or Body of Individuals (BOI).

However, this section is not applicable to the individuals if the payment is made to –

• The government
• Any Private or Public sector bank
• A post office
• A cooperative bank
• Business correspondents of a banking company
• White-label ATM operators
• Any other person notified by the Government of India.

Who is Responsible for Deducting TDS u/s 194N?

As per the Section 194N the following individual (payer) requires to deduct the TDS on making cash payment:-

• Bank (private or public sector)
• co-operative bank
• post office

Following people (payees) are exempt from the provisions of this section.

• Any federal agency
• Any kind of bank, including cooperative banks
• Any banking company’s corporate correspondent (including co-operative banks)
• Any bank’s white label ATM operator (including co-operative banks)
• Any other citizen who has been informed by the government

What is the aim of TDS in Section 194N?

If the payee regularly withdraws money at intervals, the payer must deduct  TDS from the balance if the cumulative amount withdrawn exceeds Rs 1 crore in a fiscal year with that payer.   

Note: – If a person has two bank accounts with two different banks, then he can withdraw cash of Rs 1 crore * 2 banks, i.e. Rs 2 crore without any TDS.

With effect from 1 July 2020, if any person not filed his Income tax returns for last three consecutive years then the following TDS rates will be applicable under Section 194N of Income Tax Act.

• TDS of 2% on Cash withdrawal of INR 1 Crore & above – for customers who have filed their ITRs, for all three Assessment years, relevant to the three previous years.

• TDS of 2% on Cash withdrawal of INR.20 lacs & above and 5% exceeding INR 1 Crore – for customers who have NOT filed their ITRs for all three Assessment years, relevant to the three previous years.

From the following chart, the applicable TDS rate can be better understood:-

Sr. No.	Withdrawal in a F.Y.	TDS Rate (if ITR filed for last 3 years)	TDS Rate ( if ITR not filied  for last 3 years)
1.	Up to Rs.20 lakhs	Nil	Nil
2.	Rs.20 lakhs – Rs.1 crore	Nil	2%
3.	Above Rs.1 cr.	2%	5%

Note: – If a person has two bank accounts with two different banks, the person he can withdraw cash of Rs 1 crore * 2 banks, i.e. Rs 2 crore without any TDS.

Note: – As per Section 139AA of Income Tax Act 1961 and in accordance with the guidelines issued by Central Board of Direct Taxes, it has been made mandatory to link Aadhaar with PAN by June 30, 2023 failing which the PAN becomes inoperative from 1st July’23. In such as case, the deductor is required to deduct TDS at a higher rate of 20% as per Section 206AA and Rule 114AAA (3) (iii).

As per Finance Act 2023 – The threshold limit of cash withdrawal for application of TDS has been increased to INR 3 Crore from existing INR 1 Crore in case the recipient is a co-operative society.  The above change is only for co-operative society and NOT for any other type of customer.

Navigating India’s Cashless Shift:  As a leading tax advisor or Ca in Udaipur, examined the provision and uncover the details of Section 194N and how it affects your business.