A new section 194N introduced which increased the stress level for many. The Section came in effect on 1st September, 2019. It brings good for Government but on the other hand problem for the common people. Let’s understand the new section.
Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn from a particular payer in a financial year.
Q1. Why TDS on Cash Withdrawal?
Ans: This section introduced in the Union Budget 2019 proposed on 5 July 2019. The main purpose is to discourage cash transaction and promote Digital Economy.
Q2. To Whom this section is applicable?
Ans : The section will apply to withdrawals made by any taxpayer including;
- An Individual
- A Hindu Undivided Family (HUF)
- A Company
- A partnership firm or an LLP
- A local authority
- An Association of Person (AOPs) or Body of Individuals (BOIs)
Full Guidance on Tax Deducted at Source (TDS) under GST
Q3. Who shall deduct TDS?
Ans: Payer/Person making payment as below;
- Any bank (private or public sector)
- A co-operative bank
- A post office
There are certain categories of person (payee) to whom the provision of this section will not apply. They are listed below:
- Any government body
- bank including co-operative banks
- business correspondent of a banking company (including co-operative banks)
- white label ATM operator of any bank (including co-operative banks)
Q4. What is the Ceiling Limit for Tax Deduction?
Ans: The ceiling limit is Rs. 1 Crore per bank account per annum.
Ex: If a person has withdrawn Rs. 98 Lakhs previously and now he is withdrawing another Rs. 2.5 lakh, then TDS shall be made only to Rs. 50,000.00 at 2% i.e., Rs. 1000 shall be the TDS amount.
Q6. From when Section 194N is applicable?
Ans: The provisions of Section 194N will be applied to the payments made on or after 1st September 2019.
Q7. Will the amount withdrawn before 1st September be considered in Section 194N?
Ans: The limit of Rs 1 crore will be applicable to the cash withdrawals made from 1st April 2019 to 31st March 2020 i.e. during the FY 2019-20. Hence the amount withdrawn previously shall be considered to calculate Rs. 1 Crore as well but TDS shall be deducted from 1st September and not from any previous date retrospectively.
Q8. If before 1st September Cash withdrawn exceeds Rs. 1 Crore, will TDS be applicable on that amount also?
Ans: No, TDS will not be applicable on that amount.
Following are the cases of cash withdrawn:
| Case | 1st April 19 – 31st Aug 19
(A) |
1st Sept 19 – 31st March 20
(B) |
Total Withdrawals | Tax for Period A | Tax for Period B | Total Tax |
| 1 | 90,00,000 | 10,15,000 | 1,00,15,000 | – | 2% of 15000 | 300 |
| 2 | 1,10,00,000 | 20,000 | 1,10,20,000 | – | 2% of 20000 | 400 |
| 3 | 90,00,000 | 5,00,000 | 95,00,000 | – | – | – |
Q9. Why people are protesting against this new section?
Ans: As this will stop rotation of bank balance in form of cash which is the main requirement in many businesses. In some businesses net profit does not reach to 2%. In this time of inflation, amount in the form of TDS will be blocked for a period of time. That’s the reason people are protesting against it.
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The author of above article is Riya Thawani.
