1. What is TDS on cash withdrawal u/s Section 194N about?
According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds :
- ₹ 20 lakh (if no ITR has been filed for all the three previous AYs), or
- ₹ 1 crore (if ITRs have been filed for all or any one of three previous AYs).
2. Who deducts TDS on cash withdrawal u/s 194N of the Act?
TDS is deducted by banks (private, public, and co-operative) or post offices. The tax is deducted when making any cash payment to any person in excess of ₹ 20 lakh or ₹ 1 crore (as the case may be) from his/her account maintained with such banks or post offices.
3. To whom is TDS on cash withdrawal u/s 194N of the Act not applicable?
TDS on cash withdrawal u/s 194N will not apply to withdrawals made by the following persons:
- Central or state government
- Private or public sector bank
- Any cooperative bank
- Post office
- Business correspondent of any bank
- White label ATM operator of any bank
- Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of purchase of agriculture produce
- Authorized dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents
- Any other person notified by the Government in consultation with RBI.
4. From when is TDS on cash withdrawal u/s 194N of the Act applicable?
TDS on cash withdrawal u/s 194N of the Act is applicable starting 1st September 2019, or FY 2019-2020.
5. At what rate is TDS on cash withdrawal u/s 194N deducted?
TDS will be deducted at a rate of 2% on cash withdrawals in excess of ₹ 1 crore if the person withdrawing the cash has filed income tax return for any or all three previous AYs.
TDS will be deducted at 2% on cash withdrawals of more than ₹ 20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.
Points to remember
- 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.
Mr Raj has made the following withdrawals during the financial year 2020-21. He has not filed his ITR for the financial year-2017-18, 2018- 19, 2019-20 and that the due date for filing of return for these years has expired.
|Date||Amount of Withdrawal (Rs)||Aggregate amount withdrawn up to the given date (Rs)||Rate||Computation||Tax to be deducted (Rs)|
|01/04/2020||14 lakh||14 lakh||–||–||–|
|21/07/2020||26 lakh||40 lakh||2%||(40 lakh -20 lakhs) x 2%||40,000|
|25/08/2020||35 lakh||75 lakh||2%||35 lakh x 2%||70,000|
|04/09/2020||35 lakh||1.10 crore||2% and 5%||(25 lakh x 2%) + (10 lakh x 5%)||1,00,000|
|18/10/2020||50 lakh||1.6 crore||5%||50 lakh x 5%||2,50,000|
- Section 194N is applicable when an amount is withdrawn from one or more accounts maintained with the same bank.
Mr Raj maintains a savings and current account with XYZ bank. His transactions during the FY 2020-21 are as follows:
|Date of cash withdrawn||Withdrawal from the saving account (in Rs)||Withdrawal from the current account (in Rs)|
|Tax to be deducted||Rs 20,000|
- If there are multiple bank accounts, tax deduction limit shall be based on the individual banks.
Mr Raj has withdrawn cash from the following banks during the financial year–
|Bank||Total cash withdrawn during the FY 2020-21 (in Rs)|
|Axis Bank||₹60 lakh|
|SBI Bank||₹50 lakh|
|ICICI Bank||₹10 lakh|
In the above example, No bank is required to deduct TDS under Section 194N as the limit of Rs 1 crore is not exhausted in any of the banks.
However, if Mr Raj withdraws cash of more than Rs 1 crore from SBI bank, then SBI bank is liable to deduct TDS at 2% or 5%, as the case may be.
Frequently Asked Questions
Can we claim TDS on cash withdrawal?
Yes, you can claim the tax deducted at source (TDS) on cash withdrawal from the total tax payable while filing your income tax return.
Is 194N applicable for NRI?
Section 194N applies to cash withdrawals made by residents and non-residents.
Is 194N applicable to trust?
Section 194N is applicable to all persons including charitable institutions, AOPs, Clubs, Trusts, etc., except few exceptions that are clearly defined in the said provision.