TDS stands for tax deduction at source. The Government of India introduced TDS in India to avoid increase in unaccounted incomes. On few transactions specified by the Government of India the payee deposits some amount to government as TDS in name of receiver. The receiver is allowed to adjust such TDS against total tax liability under Income Tax. This article contains details about TDS on cash Withdrawal under section 194N of Income Tax Act, 1961.
What is Cash Withdrawal?
Cash withdrawal for the purpose of TDS on Cash Withdrawal refers to the physical cash which we receive from the specific payer, such as Banks, Post Office, NBFC, which is deposited to them by us.
Section 194N of Income tax Act,1961
Section 194N under Income Tax was introduced by the Indian Government in Union budget 2019-2020. It was enforced in the same financial year but later amendments were made and clarifications regarding this provision were made by CBDT (central board of direct taxes). This new law on TDS on cash withdrawal has come into effect from July 1, 2020.
It was introduced by the Government in order to reduce cash transaction and to increase accounted transactions in the Indian Economy and also to shift India to a digital economy.
As per the provisions of section 194N of Income Tax Act, if a person withdraws more than 1 Crore from the specific payers, then the payers will deduct TDS on such transaction and deposit it.
Read Also: TDS and TCS Rates Chart – Examples of how to calculate TDS
Who can be “a person”?
An assessee as per Income Tax Act,1961
- Individual/ HUF
- Company/ body corporate
- Partnership/ LLP
- AOP/ BOI etc.
Who are “the specific payers”?
- Any private or government bank registered under Banking regulations
- The Post Office
- A co-operative and schedule bank too.
However, Provisions of 194 N will not apply, if payment made to –
- Any government bodies
- bank including its business correspondent or any White label ATM operator of bank.
- Any other person notified by government.
- Commission Agents or Traders registered under Agriculture Produce Market Committee (AMPC) who withdraws cash above 1 crores for purpose of making payment to farmers for purchasing agricultural produce.
- Full Fledged Money Changers who are maintaining separate account from which withdrawal is made only for the purpose of purchase of foreign currency from foreign tourist or non-residents.
Read Also: Income Tax on Cashbacks, Rewards, e-wallet and Online payment
Rate of TDS on Cash Withdrawal
a) Customer who have not filed ITR (income tax return) for previous 3 years and due date of filing has passed
| Amount of cash withdrawal | Rate of TDS | Rate in absence of PAN Card |
| 20 lakhs to 1 crore | 2% | 20% |
| more than 1 crore | 5% | 20% |
b) Other Customers
| Amount of cash withdrawal | Rate of TDS | Rate in absence of PAN Card |
| 1 crore or less | 0% | 0% |
| more than 1 crore | 2% | 20% |
Above mentioned rates are applied on amount in excess of notified amount of cash withdrawal.
Example 1– A person withdraws Rs. 50,00,000 from a bank account,
- If he has not submitted ITR for last 3 year–
TDS amount = 2% of (50 lakhs – 20lakhs) = 60,000
- If he has filed his ITR–
TDS amount = Nil, since the cash withdrawal does not exceed 1 Crore.
Example 2– A person withdraws Rs. 1,50,00,000 from a bank account,
- He has not submitted ITR for last 3 year
TDS amount = 5% of (150 lakhs-100 lakhs) = 2,50,000
- He has filed his ITR.
TDS amount =2% of (150 lakhs – 100 lakhs) = 1,00,000.
Read Also: Cash Transaction Limit in India – cash payment and cash receipt
Important points to note
- The limit of 1 crore or 20 lakhs is calculated for one year (financial year).
- The limit 1 crore or 20 lakhs is in respect of per bank or per payers, not per account with a payer
For Example-
Mr. A withdraws 40Lakh , 30Lakh , 50Lakh and 40Lakh from branch A, branch B, branch C and branch D respectively of HDFC bank.
TDS amount
= 2% of ((40+30+50+40) – 100)
= 1,20,000
Mr. A withdraws 40L, 30L, 50L and 40L from HDFC bank, SBI bank, PNB bank and YES bank respectively. TDS amount will be nil as limit 1 crore is per bank.
3. Banks/ Post Offices are required to file TDS return and deposit the same to credit of Government. The same will be reflected in Form No. 26AS of the deductee.
4. The cash withdrawal limit for this Financial Year will be considered from 1st April 2020.
The author of the above article is Aditya Kishore.
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