In order to discourage cash transactions and move towards less cash economy, the Finance (No. 2) Act, 2019 has inserted a new section 194N in the Income-tax Act, 1961 to provide for levy of tax deduction at source (TDS) at the rate of 2% on cash payments in excess of Rs. 1 Crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from one or more accounts maintained with it by the recipient.

For this, the Finance (No. 2) Act, 2019 had inserted a new section– 194N– in the Income Tax Act. New section 194N is applicable with effect from 01.09.2019.

Few queries were received from the general public on the applicability of this section on withdrawal of cash from 01.04.2019 to 31.08.2019. Citizens are confused whether TDS will be deducted on cash withdrawals exceeding Rs 1 crore, between April 1, 2019 and August 31, 2019 also?

The Central Board of Direct Taxes (CBDT) has clarified 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.

To dispel the concerns of the people, Income Tax Department has clarified that cash withdrawals prior to September 1, 2019 will not be subjected to 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 u/s 194N will be counted from April 1, 2019.

CBDT has specifically clarified by way of circular that section 194N will come into effect from September 1, 2019. Hence, any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under section 194N of the I-T Act. 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 of the Act shall be counted from 1st April, 2019. Hence, if a person has already withdrawn Rs 1 crore or more in cash up to 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the 2 per cent TDS will apply on all subsequent cash withdrawals.