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The government is always working to make the nation a cashless society. The Digital India Campaign and Demonetisation are two well-known initiatives used to decrease the use of paper money. Similar to this, Section 194N's addition to the ITR filing Act served the same purpose by encouraging digital payments and discouraging cash transactions in the nation.
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What is Section 194N of Income Tax Act With effect from September 1, 2019, a new Section 194N was added to the Income-tax Act to provide for the deduction of tax on cash withdrawals made by any individual from his bank or post office account in an effort to reduce cash transactions and promote a cashless society. The Finance Bill, 2019, included "Section 194N - TDS on cash withdrawals above and above Rs 1 crore." It is applicable to cash withdrawals from a single payer totaling more than Rs 1 crore within a fiscal year. It also applies to individual cash withdrawals from a single payer combined. The section works toward preventing significant cash withdrawals from bank accounts and gradually eradicating black money from India.
Who will deduct TDS u/s194N? • An individual or payer making the payment with cash will have to deduct TDS under Section 194N of the ITR filing Act . The list of such persons is as follows: • A banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of the ITR filing Act); • A co-operative bank, or • A post office
Non Applicability to TDS on cash withdrawal u/s 194N • 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 payments to the farmers on account of the purchase of agricultural produce • Authorized dealers and their 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
Rate of TDS u/s 194N If the person withdrawing the cash has filed an ITR for any or all three prior AYs, TDS will be deducted at a rate of 2% on cash withdrawals exceeding 1 crore. The tax deduction limit is further decreased to Rs 20 lakh if the person receiving the money did not file an ITR for any of the three AYs immediately prior to the year. If so, TDS will be withheld at a rate of 2% for cash withdrawals/payments over 20 lakh and 5% for withdrawals over 1 crore.
Final Words The government is constantly working to make the nation a cashless society. The Digital India Campaign and Demonetisation are two well-known initiatives used to decrease the use of paper money. Similar to this, Section 194N's addition to the ITR filing Act served the same purpose by encouraging digital payments and discouraging cash transactions in the nation. A suitable automated system can help achieve this goal of digital payments while obstructing large-scale cash transactions. Additionally, the ITR filing tax department has easy access to data on significant cash transactions and can do further research into the issue at hand.
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