Understand the implications of Section 194N on cash withdrawals exceeding ₹1 crore. Learn about TDS rates, thresholds, and compliance requirements for FY 2025-26.
What is Section 194N?
Who Will Deduct TDS Under Section 194N?
How to Calculate the Threshold Limit?
Rate of TDS Under Section 194N
Compliance Requirements under Section 194N
Points to Remember
Illustrations
FAQs on Section 194N
Section 194N mandates TDS on cash withdrawals exceeding ₹1 crore in a financial year to curb large cash transactions.
Applicability of Section 194N
Section 194N applies to cash withdrawals exceeding ₹1 crore from a bank account in a financial year.
Applicable to individuals, HUFs, companies, firms, AOPs, and BOIs.
Excludes government bodies, banks, and post offices.
Not applicable to withdrawals by specified traders under APMC.
Exemptions Under Section 194N
Certain entities are exempt from TDS under Section 194N.
Government bodies and banks, including co-operative banks.
Business correspondents of banks.
White Label ATM operators.
Objective of Section 194N
The section aims to discourage cash transactions and promote digital payments.
Reduces the risk of tax evasion.
Encourages transparency in financial transactions.
Supports the government's digital economy initiative.
Notification References
Relevant notifications clarify the applicability of Section 194N.
Notification No. 70/2019 dated 20th September 2019.
Notification No. 80/2019 dated 15th October 2019.
Additional notifications may be issued by the government.
Entities Responsible for Deduction
Banks, co-operative banks, and post offices must deduct TDS under Section 194N.
TDS is deducted by the payer making the cash payment.
Applies to all branches of a bank or post office.
TDS is deducted at the time of payment.
Exempt Payees
Certain categories of payees are exempt from TDS deduction.
Any government body.
Any bank, including co-operative banks.
Business correspondents and White Label ATM operators.
Role of the Payer
The payer is responsible for ensuring compliance with TDS provisions.
Maintain records of cash withdrawals.
Ensure TDS is deducted on applicable amounts.
Issue TDS certificates to the payee.
Consequences of Non-Compliance
Failure to deduct TDS can result in penalties.
Interest on late deduction or payment of TDS.
Penalties under Section 271H for non-compliance.
Disallowance of expenses under Section 40(a)(ia).
Understanding the Threshold
The threshold limit for TDS under Section 194N is ₹1 crore per bank or post office account.
Threshold is calculated per bank or post office account.
Multiple accounts in the same bank are aggregated.
Separate limits apply for each bank or post office.
Example Calculation
Illustration of threshold calculation for multiple accounts.
Account 1: ₹70 lakh withdrawn.
Account 2: ₹40 lakh withdrawn.
Total exceeds ₹1 crore; TDS applies on ₹10 lakh.
Special Cases
Considerations for accounts with multiple holders.
Joint accounts are treated as a single account.
Threshold applies to the aggregate withdrawal.
TDS is deducted on the excess amount.
Impact of Non-Filing of ITR
Different thresholds apply for non-filers of ITR.
Lower threshold of ₹20 lakh for non-filers.
Higher TDS rates for non-filers.
Encourages compliance with ITR filing.
Standard TDS Rates
TDS rates vary based on the taxpayer's ITR filing status.
2% TDS for withdrawals over ₹1 crore for regular filers.
5% TDS for non-filers on amounts over ₹1 crore.
No TDS for withdrawals up to ₹20 lakh for non-filers.
Impact of Non-Filing
Higher TDS rates apply to non-filers of ITR.
Encourages taxpayers to file ITR regularly.
Non-filers face a 5% TDS rate on amounts over ₹1 crore.
Lower threshold of ₹20 lakh for non-filers.
Example of TDS Calculation
Illustration of TDS calculation for a non-filer.
Withdrawal: ₹1.2 crore.
Threshold: ₹20 lakh for non-filers.
TDS: 5% on ₹1 crore = ₹5 lakh.
TDS Certificate Issuance
Payers must issue TDS certificates to payees.
Form 16A is used for TDS certificates.
Certificates must be issued quarterly.
Ensures transparency and compliance.
Record Keeping
Maintain detailed records of cash withdrawals and TDS deductions.
Track withdrawals exceeding the threshold.
Ensure accurate TDS calculations.
Maintain documentation for audits.
TDS Payment Deadlines
Adhere to deadlines for depositing TDS with the government.
TDS must be deposited by the 7th of the following month.
Quarterly TDS returns must be filed in Form 26Q.
Late payment attracts interest and penalties.
Quarterly TDS Returns
File quarterly TDS returns to report deductions.
Use Form 26Q for quarterly returns.
Include details of all deductions made.
Ensure timely filing to avoid penalties.
Issuance of TDS Certificates
Provide TDS certificates to payees for their records.
Issue Form 16A to payees.
Certificates must be issued quarterly.
Facilitates payees in filing their ITR.
Threshold Limits
Understand the threshold limits for TDS applicability.
₹1 crore for regular filers.
₹20 lakh for non-filers.
Separate limits for each bank or post office.
TDS Rates
Be aware of the applicable TDS rates.
2% for regular filers on amounts over ₹1 crore.
5% for non-filers on amounts over ₹1 crore.
No TDS for withdrawals up to ₹20 lakh for non-filers.
Compliance Deadlines
Adhere to deadlines for TDS payment and return filing.
Deposit TDS by the 7th of the following month.
File quarterly returns in Form 26Q.
Issue Form 16A quarterly to payees.
Impact of Non-Compliance
Understand the consequences of non-compliance.
Interest and penalties for late payment.
Disallowance of expenses under Section 40(a)(ia).
Penalties under Section 271H for non-filing.
Example 1: Regular Filer
Illustration of TDS calculation for a regular filer.
Withdrawal: ₹1.5 crore.
Threshold: ₹1 crore.
TDS: 2% on ₹50 lakh = ₹1 lakh.
Example 2: Non-Filer
Illustration of TDS calculation for a non-filer.
Withdrawal: ₹1.2 crore.
Threshold: ₹20 lakh.
TDS: 5% on ₹1 crore = ₹5 lakh.
Example 3: Multiple Accounts
Illustration of threshold calculation for multiple accounts.
Account 1: ₹70 lakh withdrawn.
Account 2: ₹40 lakh withdrawn.
Total exceeds ₹1 crore; TDS applies on ₹10 lakh.
Example 4: Joint Account
Illustration of TDS calculation for a joint account.
Joint Account: ₹1.1 crore withdrawn.
Threshold: ₹1 crore.
TDS: 2% on ₹10 lakh = ₹20,000.
What is the threshold limit for TDS under Section 194N?
The threshold limit for TDS under Section 194N is ₹1 crore per bank or post office account in a financial year. For non-filers of ITR, the threshold is reduced to ₹20 lakh.
Who is responsible for deducting TDS under Section 194N?
Banks, co-operative banks, and post offices are responsible for deducting TDS under Section 194N when cash withdrawals exceed the threshold limit.
What are the TDS rates applicable under Section 194N?
For regular ITR filers, the TDS rate is 2% on amounts exceeding ₹1 crore. For non-filers, the rate is 5% on amounts exceeding ₹20 lakh.
Are there any exemptions under Section 194N?
Yes, exemptions include government bodies, banks, co-operative banks, business correspondents, and White Label ATM operators.
How is the threshold calculated for multiple accounts?
The threshold is calculated per bank or post office account. Withdrawals from multiple accounts in the same bank are aggregated to determine if the threshold is exceeded.
What happens if TDS is not deducted under Section 194N?
Failure to deduct TDS can result in interest and penalties, including disallowance of expenses under Section 40(a)(ia) and penalties under Section 271H.
When should TDS be deposited with the government?
TDS must be deposited by the 7th of the following month. Quarterly TDS returns must be filed using Form 26Q.
How can a payee obtain a TDS certificate under Section 194N?
Payers must issue TDS certificates in Form 16A to payees quarterly, providing details of the TDS deducted.
Does Section 194N apply to withdrawals from all types of accounts?
Section 194N applies to cash withdrawals from savings, current, and overdraft accounts, but not to withdrawals by exempt entities.
What is the impact of not filing an ITR on TDS under Section 194N?
Non-filers of ITR face a lower threshold of ₹20 lakh and a higher TDS rate of 5% on cash withdrawals exceeding this limit.