Section 194N TDS on Payment of certain amounts in cash

Section 194N of the Income Tax Act

• Deductor/ Payer: Every person, being-
  • a banking company including any bank or banking institution (Private or Public)
  • a co-operative bank
  • a post office
• Deductee/ Payee: Any person other than the following:-
  • the Government
  • any banking company or co-operative bank or a post office
  • any business correspondent of a banking company or co-operative bank,
  • any white label ATM operator of a banking company or co-operative bank
  • Any other person notified by the Central Government
• Nature of Payment: Payments in Cash by Banking company or Co-operative bank or a post office
• Time of deduction: At the time payment in cash
• Threshold Limit & Rate of TDS:
  • Aggregate of amount in cash exceeding of Rs. 1 crore during the previous year from one or more accounts maintained by the recipient.
  • TDS is required to be deducted @ 2 % of payment or aggregate of payment in cash exceeding of Rs. 1 Crore

Amendment in Finance Act 2020: (Applicable from 01-07-2020)

This amendment has been made for the recipient who has not filled the Income Tax Return for the three years immediately preceding the year, then this section shall apply with modification that-

• • TDS is required to be deducted @ 2 % of payment or aggregate of payment in cash exceeding of Rs. 20 Lakh but does not exceed Rs. 1 Crore
  • TDS is required to be deducted @ 5 % of payment or aggregate of payment in cash exceeding of Rs. 1 Crore

• Examples:
  1. Mr A withdraws of Rs. 62 Lakhs in the aggregate upto the month December and further withdraws of Rs. 94 Lakhs in the month of February then the TDS liability is only on the excess amount of Rs.56 Lakhs (62+94-100) @ 2% & hence TDS liability will be Rs. 56*2%=Rs. 1.12 lakhs and this is required to be deducted at the time of payment of Rs.94 Lakhs.
  2. More than one account with same bank (either in same branch or different): Mr A has saving and current account with 2 Branches of the same bank. He withdraws of Rs. 59 Lakhs in the aggregate from saving account of one branch and withdraws of Rs. 75 Lakhs in the aggregate from current account of second branch. Then the TDS liability is only on the excess amount of Rs.34 Lakhs (59+75-100) @ 2% & hence TDS liability will be Rs. 34*2%=Rs. 0.68 lakhs.
  3. X has not filled the Income Tax Return for the three years immediately preceding the year.

• • • Withdraws of Rs. 12 Lakhs in the aggregate upto the month December and further withdraws of Rs. 14 Lakhs in the month of February then the TDS liability is only on the excess amount of Rs.26 Lakhs (12+14-20) @ 2% & hence TDS liability will be Rs. 6*2%=Rs. 0.12 lakhs and this is required to be deducted at the time of payment of Rs.14 Lakhs.
    • Withdraws of Rs. 52 Lakhs in the aggregate upto the month December and further withdraws of Rs. 64 Lakhs in the month of March

Practically the TDS is deducted on the first payment on Rs. 32 Lakhs (52-20) @ 2 % i.e. Rs. 0.64 lakhs

But on the second payment the liability is required to be deducted @ 5% on payment exceeding Rs. 1 crore. Therefore, the TDS is calculated @ 5% on Rs. 26 Lakhs (52+64-100) i.e. Rs. 1.30 Lakhs but since we had already deducted Rs. 0.64 Lakhs. So, further TDS liability will be Rs.0.66 Lakhs.

Extract from the Finance Act 2020:

‘‘194N. Every person, being, —

• a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);
• a co-operative society engaged in carrying on the business of banking; or
• a post office,

who is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent. of such sum, as income-tax:

Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that—

• the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and
• the deduction shall be—
• an amount equal to two per cent. of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
• an amount equal to five per cent. of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

Provided further that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification:

Provided also that nothing contained in this section shall apply to any payment made to—

• the Government;
• any banking company or co-operative society engaged in carrying on the business of banking or a post office;
• any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;
• any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007:

Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification.