Section 194N - TDS on cash withdrawal in excess of Rs 1 crore

1. What is Section 194N?

According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person from a particular bank in a particular FY exceeds: 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).

The section will apply to withdrawals made by any taxpayer, including:

• An individual
• A Hindu Undivided Family (HUF)
• A company
• A partnership firm or an LLP
• An Association of Person (AOPs) or Body of Individuals (BOIs)

BUT IT SHALL NOT APPLY IF PAYMENT IS MADE TO-

• The Government
• Any bank (private or public sector)
• A co-operative bank
• A post-office
• Business correspondents of a banking company
• White Label ATM operators of any Bank
• Specified trader or commission agents operating under the Agriculture Produce Market Committee
• An authorized dealer or agent/sub-agent of its franchise,
• A RBI licensed Full-Fledge 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

2. How to calculate the threshold limit?

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.

The provision of Section 194N will be applied to the payments made on or after 1 September 2019. But the limit of Rs 1 crore will apply to the cash payments/withdrawals made during FY 2019-20.

3. Who will deduct TDS under Section 194N?

The person (payer) making the cash payment will have to deduct TDS under Section 194N. Here is the list of such persons:

• Any bank (private or public sector)
• A co-operative bank
• A post office

4. 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. 

Section 194M - TDS on payment to resident contractors and professionals

1. 1. What is Section 194M?

An individual and/or Hindu undivided family (HUF) has to deduct tax at source under Section 194M. Such individuals and HUF must not be required to get their books of accounts audited. Books of Accounts are required to be audited if total turnover or receipts of a business exceed Rs. 1 crore or where receipts of a profession exceed Rs. 50 lakh. Read more in detail here.

It applies when the total amount paid to a resident individual, for carrying out any contractual work or providing any professional service, in a financial year exceeds Rs 50,00,000.

1. 2. At what rate is TDS on cash withdrawal u/s 194N deducted?

Any individual/HUF paying any sum to a resident, for carrying out any work (including the supply of labour) under any contract or by way of fees for professional services rendered during the financial year, exceeding Rs 50,00,000 in a year will have to deduct TDS at 5%. The TDS rate is 3.75% for transactions from 14 May 2020 until 31 March 2021.

1. 3. Point of Taxation?

TDS amount will be deducted on the earlier of the following dates:

• At the time of credit of the amount.
• At the time of payment by cash or by the issue of a cheque or draft.