TDS ON CASH WITHDRAWAL (SECTION 194N)

(1) Applicability and rate of TDS

Section 194N provides that every person, being

• a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred under section 51 of that Act)
• a co-operative society engaged in carrying on the business of banking; or 
• a post office

who is responsible for paying any sum, being the amount or aggregate of amounts, as the case may be, in cash exceeding ₹1 crore during the previous year, to any person from one or more accounts maintained by such recipient-person with it, shall deduct tax at source @2% of such sum.

(2) Time of deduction

This deduction is to be made at the time of payment of such sum.

(3) Modification in rate of TDS and threshold limit of withdrawal for recipient who has not furnished return of income for last 3 years

If the recipient has not furnished the returns of income for all the three assessment years relevant to the three previous years, for which the time limit of file return of income under section 139(1) has expired, immediately preceding the previous year in which the payment of the sum is made, the sum shall mean the amount or the aggregate of amounts, as the case may be, in cash > 20 lakhs during the previous year, and the tax shall be deducted at the rate of -

• 2% of the sum, where the amount or aggregate of amounts, as the case may be, being paid in cash ₹ >20 lakhs but ≤  ₹1 crore

• 5% of the sum, where the amount or aggregate of amounts, as the case may be, being paid in cash > ₹1 crore

However, the Central Government is empowered to specify, with the consultation of RBI, by notification, the recipient in whose case this provision shall not apply or apply at reduced rate, subject to the satisfaction of the conditions specified in such notification.

(4) Non-applicability of TDS under section 194N

Liability to deduct tax at source under section 194N shall not be applicable to any payment made to –

• The Government
• Any banking company or co-operative society engaged in carrying on the business of banking or a post-office.
• Any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the RBI guidelines.
• Any white label ATM operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the RBI under the Payment and Settlement Systems Act, 2007.

The Central Government may specify, with the consultation of RBI, by notification, the recipient in whose case section 194N shall not apply or apply at reduced rate, subject to the satisfaction of the conditions specified in such notification. Accordingly, the Central Government has, after consultation with the Reserve Bank of India (RBI), specified –

• Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) – For availing exemption from applicability of TDS u/s 194N, CRA’s and franchise agents of WLATMO’s should maintain a separate bank account from which withdrawal is made only for the purposes of replenishing cash in the Automated Teller Machines (ATM’s) operated by such WLATMO’s.
  
  Further, the WLATMO should furnish a certificate every month to the bank certifying that the bank account of the CRA’s and the franchise agents of the WLATMO’s have been examined and the amounts being withdrawn from their bank accounts has been reconciled with the amount of cash deposited in the ATM’s of the WLATMO’s.
  
  
• Commission agent or trader, operating under Agriculture Produce Market Committee (APMC), and registered under any law relating to Agriculture Produce Market of the concerned State - For availing exemption from the applicability of TDS u/s 194N, the commission agent/trader should intimate to the banking company or co-operative society or post office, his account number through which he wishes to withdraw cash in excess of 1 crore in the previous year along with his Permanent Account Number (PAN) and the details of the previous Also, he should certify to the banking company or co-operative society or post office that the withdrawal of cash from the account in excess of 1 crore during the previous year is for the purpose of making payments to the farmers on account of purchase of agriculture produce.
  
  Further, the banking company or co-operative society or post office has to ensure that the PAN quoted is correct and the commission agent or trader is registered with the APMC, and for this purpose, collect necessary evidences and place the same on record.

(a) the authorised dealer and its franchise agent and sub-agent and

(b) Full-Fledged Money Changer (FFMC) licensed by the RBI and its franchise agent

Such persons should maintain a separate bank account from which withdrawal is made only for the purposes of -

• purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by RBI or
  
  
• disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MTSS) of the RBI

The exemption from the requirement to deduct tax u/s 194N would be available only if a certificate is furnished by the authorised dealers and their franchise agent and sub-agent, and the Full-Fledged Money Changers (FFMC) and their franchise agent to the bank that withdrawal is only for the purposes specified above and the directions or guidelines issued by the RBI have been adhered to.

“Authorised dealer” means any person who is authorised by the RBI as an authorised dealer to deal in foreign exchange [Section 10(1) of the Foreign Exchange Management Act, 1999].

• Person to whom credit is to be given for tax deducted and paid: Rule 37BA - provides the manner of giving credit for tax deducted and remitted to the Central Government i.e., it specifies the person to whom credit for tax deducted is to be given and also the assessment year for which the credit may be.
  
  Accordingly, sub-rule (3A) has been inserted in Rule 37BA, to provide that, for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made.

(5) Furnishing particulars in case of no deduction of tax in consequence of exemption [Rule 31A]

 Every person has to furnish particulars of amount paid or credited on which tax was not deducted in view of the exemption provided in point (4) above. [Rule 31A].