Section 194N- TDS on cash withdrawal: Things to Remember in 2024

 The finance minister introduced Section 194N in the Union Budget 2019 to reduce cash transactions. This section mandates tax deduction at source (TDS) on cash withdrawals exceeding Rs 1 crore. Simply put, If someone withdraws a large amount of cash from their accounts in a financial year, the government requires a tax to be deducted at source (TDS). This applies if the total amount withdrawn exceeds either Rs 20 lakh without filing income tax returns for the past three assessment years, or Rs 1 crore if the person has filed income tax returns for at least one of the past three assessment years.

Note:

In the Budget of 2023, the government raised the annual cash withdrawal limit to Rs 3 crores for cooperative societies.

Section 194N- All You Need To Know

Section 194N applies to cash withdrawals exceeding Rs 1 crore from bank accounts, cooperative societies, or post offices within a financial year. It covers all sums of money withdrawn from a specific bank during that period. This rule affects various types of taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, partnership firms, Limited Liability Partnerships (LLPs), and Associations of Persons (AOPs) or Bodies of Individuals (BOIs).

When TDS on cash withdrawals doesn't apply?

• TDS on cash withdrawals doesn't apply if the payment is made to:
• Any bank (private or public sector)
• A co-operative bank
• A post-office
• The Government
• Business reporters of a banking company
• ATM operators of any bank (only White Label)
• Traders or commission agents operating under APMC as per Notification No. 70/2019-Income Tax Dated 20th September 2019.
• An authorized dealer or agent/sub-agent of its franchise
• A Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India (RBI), or any agent from its franchise, subject to the conditions as per Notification No. 80/2019-Income Tax dated 15th October 2019.
• Any other person who has been notified by the Government of India.

How To Calculate The Threshold Limit Of Tds On Cash Withdrawals?

To calculate the threshold limit for TDS on cash withdrawals, you need to consider the following:

1. Nature of the Entity: Determine whether the entity making the cash withdrawals falls under any specific category mentioned in the tax laws, such as an individual, Hindu Undivided Family (HUF), company, partnership firm, etc.
2. Previous Income Tax Returns (ITRs): Check whether income tax returns have been filed for the preceding three assessment years. If ITRs have been filed for all three previous assessment years, the threshold limit is Rs 1 crore. If no ITR has been filed for any of the three previous assessment years, the threshold limit is Rs 20 lakh.
3. Aggregate Cash Withdrawals: Sum up all cash withdrawals made from bank accounts, cooperative societies, or post offices during the financial year.
4. Compare with Threshold: Compare the aggregate cash withdrawals with the applicable threshold limit. If the total cash withdrawals exceed the threshold limit, TDS is applicable.
5. TDS Calculation: If the total cash withdrawals exceed the threshold limit, the applicable TDS rate is deducted from the excess amount.

While in business payments made via bearer cheques cannot be considered valid business expenditures under section 40(A)(3) of the Income Tax Act. Any payment exceeding Rs 10,000 in a single transaction or in aggregate per day is not allowed as a business expense.

It's important to note that specific rules and rates may vary based on the relevant tax laws and notifications issued by the government. Therefore, you should consult with a tax professional like TaxAdvisory or refer to the latest tax regulations for accurate calculations.

Section 194N TDS Rate

Here are two important points to keep in mind:

If someone is receiving cash, they can't give Form No. 15G/15H to the bank or request a lower deduction certificate under section 197.

When figuring out the three years just before the current one, if the deadline for filing returns under section 139(1) hasn't passed yet, don't count that assessment year.

Example of TDS On Cash withdrawal

An individual who withdrew a total of Rs 1.5 crore in cash from your bank account during the financial year. Since you have filed income tax returns for the past three assessment years, the threshold limit for TDS on cash withdrawals is Rs 1 crore for you.

Here's how the calculation works:

• Total cash withdrawals: Rs 1.5 crore
• Threshold limit for TDS: Rs 1 crore
• Excess cash withdrawals subject to TDS: Rs1.5 crore - Rs1 crore = Rs50 lakh
• Now, let's assume the applicable TDS rate is 2% on excess cash withdrawals.
• TDS amount = Excess cash withdrawals × TDS rate = Rs 50 lakh × 0.02 = Rs 1,00,000

So, in this example, the TDS amount on your cash withdrawals would be Rs 1,00,000.

Final Words

TDS on cash withdrawals is like an alert from the government to keep an eye on large cash withdrawals and prevent tax problems. It applies when someone takes out more than a certain amount of cash from their accounts in a year. The specific limit depends on things like your tax filing history and the type of taxpayer you are. Understanding these rules is important to avoid any unexpected tax bills or fines. If you are unsure, it's wise to talk to a tax expert like TaxAdvisory and stay informed about the latest tax laws.