TDS Section 194N – TDS on cash withdrawals
TDS Section 194N Overview
In this post, We will look at TDS Section 194N of Income Tax and its application and non-applicability. Let’s look at the following topics in more detail:
Introduction to TDS Section 194N
The Indian government is encouraging people to use digital payments instead of cash.
They’ve introduced a rule called Section 194N in the Income Tax Act.
It says that if someone takes out more than 1 Crore rupees in cash in a year, the government will take a small portion (2%) of that money as tax. This rule started on September 1, 2019.
Applicability of Section 194N
Section 194N applies when a person withdraws cash from:
- A bank (subject to the Banking Regulation Act of 1949 or any bank mentioned in Section 51).
- A cooperative society that operates like a bank (if the annual cash withdrawal crosses Rs 3 Crores – Budget 2023)
- The post office.
Non- Applicability of Section 194N
Section 194N doesn’t apply to the following cases:
- Payments to the Government of India.
- Transactions with regular banks or cooperative banks that offer banking services.
- Payments are made at the post office.
- Business correspondents of banks or cooperative societies, as defined by the RBI.
- White Label ATM Operators (WLAOs) or cooperative societies that follow RBI’s Payment and Settlement Systems Act of 2007.
- Specified trader or commission agents operating under the Agriculture Produce Market Committee (APMC) vide Notification No. 70/2019-Income Tax Dated 20th September, 2019.
- An authorised dealer or agent/sub-agent of its franchise
- A RBI licensed Full-Fledged Money Changer (FFMC) or any agent from its franchise subject to conditions as per Notification No. 80/2019-Income Tax dated 15th October, 2019.
- Any other person notified by the Government of India
Rate of TDS under Section 194N
Section 194N requires the person giving you money to take a small part of it as tax if you withdraw more than Rs 1 crore in cash in a year. They will take a 2% tax on the extra amount over Rs 1 crore.
For example, if you withdraw Rs 50,000 extra, they will take Rs 1,000 as tax. But if you have not filed your income tax return for the last three years, the tax rates change.
In that case, it’s 2% for withdrawals between Rs 20 lakh and Rs 1 crore and 5% for amounts over Rs 1 crore.
Example for tax deduction under section 194N
Example 1:
Mr Kamal maintains an current account in ICICI bank and the details of his cash withdrawal and tax deduction for the FY 2022-23 is as shown below. The TDS deducted u/s 194N in such case is as below;
Date of Cash withdrawal | Amount of Withdrawal | Aggregate Amount | Tax Deducted |
04/04/2022 | Rs 20,00,000 | Rs 20,00,000 | 0 |
25/05/2022 | Rs 10,00,000 | Rs 30,00,000 | 0 |
15/06/2022 | Rs 5,00,000 | Rs 35,00,000 | 0 |
18/08/2022 | Rs 25,00,000 | Rs 60,00,000 | 0 |
20/09/2022 | Rs 7,50,000 | Rs 67,50,000 | 0 |
06/10/2022 | Rs 8,00,000 | Rs 75,50,000 | 0 |
03/12/2022 | Rs 10,50,000 | Rs 86,00,000 | 0 |
29/01/2023 | Rs 12,00,000 | Rs 98,00,000 | 0 |
19/03/2023 | Rs 10,00,000 | Rs 1,08,00,000 | Rs 16,000 |
Total | Rs 1,08,00,00 | Rs 16,000 | |
Tax Deducted | 1,08,00,000 – 1,00,00,000 = 8,00,000 * 2% = 16,000 | ||
Example 2:
Mr. Ramesh has a savings and current account in SBI bank and made the following withdrawals during the financial year 2022-23. It is also noticed that he has not filed his ITR for the financial year 2019-20, 2020- 21, 2021-22 and that the due date for filing of return for these years has expired. The TDS on withdrawal of cash in this case is as below.
Date of withdrawal | Amount | Aggregate Amount | Rate of Tax | Tax Deducted |
24/04/2022 | Rs 15,00,000 | Rs 15,00,000 | – | 0 |
15/06/2022 | Rs 20,00,000 | Rs 35,00,000 | 2% | 35,00,000 – 20,00,000 = 15,00,000 * 2% = 30,000 |
09/08/2022 | Rs 7,00,000 | Rs 42,00,000 | 2% | 7,00,000 * 2% = 14,000 |
18/11/2022 | Rs 30,00,000 | Rs 72,00,000 | 2% | 30,00,000 * 2% = 60,000 |
29/01/2023 | Rs 25,00,000 | Rs 97,00,000 | 2% | 25,00,000 * 2% = 50,000 |
17/03/2023 | Rs 15,00,000 | Rs 1,12,00,000 | 5% | 3,00,000 * 2% = 6,000 12,00,000 * 5% = 60,000 |
30/03/2023 | Rs 10,00,000 | Rs 1,22,00,00 | 5% | 10,00,000 * 5% = 50,000 |
Important points
- The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not per the taxpayer’s account. I.e. if a person has three bank accounts with three different banks, he can withdraw cash of Rs 1 crore * 3 banks, i.e. Rs 3 crore without any TDS.
- Section 194N applies when you get more than Rs. 1 Crore in cash during a year, from April 1 to March 31 of the following year.
- But if a bank or similar place gives you a bearer cheque (like a regular cheque) instead of cash, it doesn’t count as cash for this rule so they won’t take any tax.
- Banks and similar places must record cash payments over Rs. 1 Crore in a year for each account.
- If the person getting the money and who owns the account differ, and the payment is made through a bearer cheque, then there will be no TDS deduction.
- Payments to the Government, Banks, Cooperative Societies, and Post Offices don’t count under this rule, no matter how much cash is involved. So, they don’t take any tax from such payments.
- The recipient of cash cannot furnish Form No. 15G/15H to the bank and cannot apply for a lower deduction certificate u/s 197.
- While calculating three years immediately preceding the years, if the date of return u/s 139(1) has not expired, then that assessment year is not to be considered.
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FAQ
1. Can you request a refund for TDS on cash withdrawals?
Ans: You can reduce the TDS amount from your total tax when you file your income tax return.
2. Does the cash withdrawal rule (Section 194N) also affect non-resident Indians (NRIs)?
Ans: Yes, people living in India and those living outside of India are subject to this rule regarding cash withdrawals.
3. Does Section 194N apply to trusts and charitable organizations?
Ans: Yes, Section 194N applies to all individuals and entities, including charitable institutions, associations of persons (AOPs), clubs, trusts, etc., with a few exceptions as defined in the provision.
