Section 194N – TDS on Cash withdrawal of more than 1 Crore

Who is required to deduct tax? 

Section 194N requires every banking company, co-operative bank or post office to deduct tax on cash withdrawal made by any person from account(s) maintained with such bank or post office.

When tax shall be required to be deducted? 

TDS under Section 194N tax shall be required to be deducted only when the aggregate amount of cash withdrawal during the previous year by a person from one or more of his bank or post office account, as the case may be, exceeds Rs. 1 crore. Further, the tax shall be required to be deducted only on the amount exceeding Rs. 1 crore.

What is the rate of TDS? 

The tax shall be deducted at the rate of 2% on the amount of cash withdrawal exceeding Rs. 1 crore.

What is the date of applicability of section 194N?

Section 194N is made applicable from September 1, 2019. Hence, every bank or post office shall be required to deduct TDS on cash withdrawal made on or after September 1, 2019. However, Section 194N provides that the tax shall be required to be deducted only when the aggregate amount of cash withdrawn by a person during the previous year, from one or more of his bank or post office account, exceeds Rs. 1 Crore.

Hence, for the purpose of computation of threshold limit of Rs. 1 crore, the total amount of cash withdrawn during the previous year shall be considered.  To clarify further, the CBDT has issued a Press Release, Dated 30-08-2019 to provide that any cash withdrawal prior to 1st September 2019 will not be subjected to the TDS under Section 194N. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N shall be counted from 1st April, 2019.

Hence, if a person has already withdrawn Rs. 1 crore or more in cash upto 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the 2% TDS shall apply on all subsequent cash withdrawals made on or after 1st September 2019.

When tax shall not be required to be deducted? 

No tax shall be required to be deducted if cash withdrawal from a bank or post office is made by the following recipients:

1. 1. Central or State Government
   2. Banks
   3. Co-op. Banks
   4. Post Office
   5. Banking correspondents
   6. White label ATM operators
   7. Other persons notified by the Govt. in consultation with the RBI.

Example1: – Mr. A has saving and current account with a bank. The details of cash withdrawn from both the accounts are as follows:

As Section 194N has been inserted in Income-tax Act with effect from 01-09 2019, the tax shall be required to be deducted only after the said date. However, for the purpose of calculation of threshold limit of Rs. 1 crore, the aggregate amount of cash withdrawn from one or more accounts during the previous year shall be considered. The tax to be deducted under Section 194N from the amount withdrawn shall be as under:

Example 2: – Suppose in the above example, Mr. A has also withdrawn the following amounts during the year:

Liability of TDS under section 194N shall be calculated as under: 

Although the amount of cash withdrawn from the Mr. A’s bank accounts before September 1, 2019 exceeds Rs. 1 crore but no TDS will be deducted on such amount. TDS will be deducted only on the amounts which are withdrawn on or after September 1, 2019, i.e. Rs. 1,70,00,000 (1,05,00,000 + 65,00,000).