A bank, co-operative bank or a post office, who is responsible for paying any sum in cash to an account holder is required to deduct TDS on cash withdrawal u/s 194N.
1. What is section 194N TDS on cash withdrawal ?
According to section 194N of income tax a bank, co-operative bank or post office paying any sum in cash to an account holder in excess of threshold limit is required to deduct tax at source. Further, this section is applicable if cash withdrawal is more than ₹1crore from bank during any financial year.
This section is applicable if withdrawal is made by any assesse are as follows:
- A Company
- HUF
- Individual
- Partnership firm including LLP
- AOP (Association of Person) or BOI (Body of individual).
2. To whom section 194N is not applicable?
Th provisions of section 194N of income tax act is not applicable if payment is made to following:
- Government
- Post office
- Banks
- Co-operative society engaged in carrying on the business of banking
- Banking correspondence
- White label ATM operator
- Who are involved in the handling of substantial amount of cash as a part of their business operation.
- Any RBI Licensed full fledge money changer or any agent of its franchise subject to the condition as per notification no. 80/2019 -income tax dated 15.10.2019 .
- Specified trader or commission agent operating under the agriculture produce market committee.
3. What is the threshold limit for section 194N?
The deductor will have to deduct TDS @2% on cash payments or withdrawal of more than ₹1 crore in a financial year u/s 194N.
However, if an individual receives cash, has not filed income tax return for three years immediately proceeding the financial year, the TDS limit is reduced to ₹20 lakh.
TDS rate is 2% if cash payments of more than ₹20 lakh or up to ₹1 crore .
And rate is 5% cash payments of more than ₹1 crore .
Further, if person has 2 bank account and he has furnished ROI than he can withdraw ₹1 crore from each bank without deducting TDS.
4. When TDS u/s 194N is deducted?
TDS on cash withdrawal u/s 194N is deductible at the time of payment in cash.
5. Example of section 194N
1.For instance Mr. A is a trader and has withdrawn cash of ₹78 lakhs from HDFC bank during the year. And also withdrawn cash of ₹45 lakhs from SBI bank . Mr. A has filed their ROI on time.
Application of section 194N : TDS will not be deducted because cash withdrawal does not exceeds ₹1 crore in a financial year.
Further, If a person has two bank accounts with different banks , he can withdraw cash of ₹1 crore from each bank i.e. ₹2 crore without any TDS.
2. Lets take another example Mr. X has withdrawn cash of ₹50 lakhs from ICICI bank during the year and has has not filed ROI since many years.
Application of section 194N : TDS will be deducted because cash withdrawal exceeds ₹20 lakh in a financial year and he has not filed ROI for three years immediately proceeding the financial year.
According to this section TDS will be deductible @2% on ₹30 lakh .
Hence, ICICI bank will deduct TDS @2% on ₹30 lakh i.e. ₹1 lakh.
6. Frequently asked question
1. Can we claim refund of TDS u/s 194N?
=> Yes, you can get refund of TDS paid u/s 194N or get it adjusted against the total income tax liability.
2. I have withdrawn 98 lakh from HDFC bank and 1 crore from SBI bank during the financial year 2023-24. And i have file ITR for last 3 years . Will TDS u/s 194N be deducted in this case ? If yes than at what amount?
=> No, TDS will not be deducted in the above case because as per section 194N TDS will be deducted if cash withdrawal or payments of more than ₹1 crore in a financial year.
Further, If a person has two bank accounts with different banks , he can withdraw cash of ₹1 crore from each bank i.e. ₹2 crore without any TDS.
3. Who is the deductor under section 194N?
A bank, co-operative bank or a post office, who is responsible for paying any sum in cash to an account holder is required to deduct TDS on cash withdrawal u/s 194N.
