Simplified Laws Guide to Taxation and Legal Concern “A chain is only as strong as its weakest link” – Someone must have reminded the Government of this proverb and from thereon, the Government has relentlessly engaged in linking business’. They don’t want to leave any weak links in any financial transactions. They have done straight links, cross links and zig zag links and I don’t find anything has been left out or anything more is available to be linked.
Section 194N is one such link, applicable from 1st September 2019 w.r.t.. cash withdrawals from the bank/s by anyone.
If any person, be it a company, firm or an individual withdraws cash of Rs.1 Crore or more in a financial year, then the banker has to deduct tax (TDS) at 2%. The cash withdrawal from the savings account, current account, cash credit account, overdraft account, etc. of the same person from all branches, banks, co-operative societies, post office, shall be aggregated to determine the threshold limit of Rs. 1 crore. (this is to give a shock to those smart people, who have the tendency of operating from 5 different accounts!)
A couple of more relevant points to note
- The purpose of withdrawal, whether personal or business, is irrelevant.
- TDS shall apply on cash withdrawal which exceeds Rs.1 Crore and not on the entire amount withdrawn. Suppose, Rs.1.50 crores is withdrawn, TDS has to be done on Rs.50 lakhs by the banker.
- TDS credit (like all other TDS) is available to set-off against the actual tax liability of the taxpayer. Any remaining or excess credit of TDS will be refunded to such person.
- Further, exemption from section 194N was given for the withdrawal of cash from the account in excess of Rs. 1 Crore during the previous year for the purpose of making payments to the farmers on account of purchase of agriculture produce by a commission agent or trader, operating under Agriculture Produce Market Committee (APMC) and registered under any Law relating to Agriculture Produce Market.
There is another part to the story which is mostly irrelevant in today’s context. As per this, if the person withdrawing the cash has not filed the return within the due dates in the last 3 years, then
- The threshold limit is reduced to Rs.20 Lakhs instead of Rs.1 Crore
- TDS at 2% for withdrawals between Rs.20 Lakhs and Rs.1 Crore is to be done
- Above Rs.1 Crore – 5% TDS to be done.
All people in my network are filing the returns and those who are not filing won’t have such money to withdraw, let alone pay TDS on it!
B E Kumar Prasad
Chartered Accountant
