Section 194N

Section 194N of the Income Tax Act, 1961 is applicable on cash withdrawals from an account maintained with a bank or post office of India. The CBDT introduced section 194N through the Finance Bill 2019. The intent is to discourage cash transactions and promote digital transactions in the economy.

What is Section 194N?

Section 194N is applicable on cash withdrawal in excess of Rs 1 crore. Section 194N is attracted when a taxpayer withdraws more than Rs 1 crore from the account. TDS must be deducted when the withdrawn amount or the aggregate of all withdrawal amounts during the financial year from one or all accounts exceeds Rs 1 crore. Such accounts are maintained by the taxpayer. TDS must be deducted at the time of payment of such an amount to the taxpayer.  

The provisions apply to the following taxpayers who withdraw in excess of Rs 1 crore:

1. An Individual Taxpayer
2. Non-Resident of India
3. Hindu Undivided Family (HUF)
4. Domestic or Foreign Company
5. Partnership Firm, Limited Liability Partnership LLP
6. Local Authority
7. Association of Person AOP
8. Body of Individuals BOI

Who is Liable to Deduct TDS Under Section 194N?

The person who is responsible for paying the amount withdrawn is liable to deduct TDS at the time of making the payment to the taxpayer. The following are such persons who are responsible for TDS deduction:

1. a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
2. a co-operative society engaged in carrying on the business of banking; or
3. a post office

To whom is TDS on cash withdrawal u/s 194N of the Act not applicable?

Section 194N is not applicable to the following persons irrespective of the amount withdrawn by them:

• Central or State Government of India
• Private Sector Bank
• Public Sector Bank
• Cooperative Bank
• Post Office of India
• Business correspondent of any bank
• White label ATM operator of any bank
• Central government-specified commission agents or traders operating under the Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of the purchase of agricultural produce
• Authorized dealers and its franchise agent and subagent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents
• Any other person as notified by the Central Government of India in consultation with the Reserve Bank of India RBI

TDS Rate Under Section 194N

Condition	Amount Withdrawn	TDS Rate
The taxpayer has filed the income tax return for any or all the previous 3 assessment years	The amount is withdrawn in excess of Rs 1 crore	2% of the amount withdrawn
The taxpayer has not filed the income tax return for any of the previous 3 assessment years	The amount is withdrawn in excess of Rs 20 lakhs and less than Rs 1 crores	2% of the amount withdrawn
The taxpayer has not filed the income tax return for any of the previous 3 assessment years	Amount is withdrawn in excess of Rs 1 crore	5% of the amount withdrawn

How To Calculate TDS Amount Under Section 194N?

Let us understand the calculation of TDS deduction under section 194N with the help of the following illustrations:

Taxpayer has filed ITR 

Miss Puja makes the following withdrawals from her savings account during the financial year. She has filed income tax returns for the previous years. The following table will help you understand the TDS amount.

Date	Amount Withdrawn	Cumulative Amount Withdrawn	Computation	TDS Amount
10.01.2021	Rs 20 lakhs	Rs 20 lakhs	NIL	NIL
20.04.2021	Rs 40 lakhs	Rs 60 lakhs	NIL	NIL
31.07.2021	Rs 10 lakhs	Rs 70 lakhs	NIL	NIL
03.08.2021	Rs 40 lakhs	Rs 1.1 Crore	(Rs 1.1 Crore – Rs 1 Crore) * 2%	Rs 20,000
23.09.2021	Rs 20 lakhs	Rs 1.3 Crore	(Rs 1.3 Crore – Rs 1.1 Crore) * 2%	Rs 40,000

Taxpayer has NOT filed ITR 

Miss Puja makes the following withdrawals from her savings account during the financial year. She has NOT filed income tax returns for the previous years. The following table will help you understand the TDS amount.

Date	Amount Withdrawn	Cumulative Amount Withdrawn	Computation	TDS Amount
10.01.2021	Rs 20 lakhs	Rs 20 lakhs	NIL	NIL
20.04.2021	Rs 40 lakhs	Rs 60 lakhs	(Rs 60 lakhs – Rs 20 lakhs) * 2%	Rs 80,000
31.07.2021	Rs 10 lakhs	Rs 70 lakhs	(Rs 70 lakhs – Rs 60 lakhs) * 2%	Rs 20,000
03.08.2021	Rs 40 lakhs	Rs 1.1 Crore	(Rs 1 Crore – Rs 70 lakhs) * 2%(Rs 1.1 Crore – Rs 1 crore) * 5%	Rs 1,10,000
23.09.2021	Rs 20 lakhs	Rs 1.3 Crore	(Rs 1.3 Crore – Rs 1.1 Crore) * 5%	Rs 1,00,000

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