Section 194N Income Tax :TDS on Payment of certain amounts in cash by Banks/Post offices

By | July 6, 2019
(Last Updated On: July 6, 2019)

Section 194N Income Tax : Payment of certain amounts in cash

Finance Bill 2019 inserted Section 194N of Income Tax Act with effect from the 1st day of September, 2019: Payment of certain amounts in cash

Video Explanation of Section 194N Income Tax

Commentary on Section 194N of Income Tax Act

  • Effective Date : Section 194N of Income Tax Act effect from the 1st day of September, 2019
  • Why TDS has to be deducted u/s 194N of Income Tax : If Banks/Post Office pays any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the Financing year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it.
  • When TDS has to be deducted u/s 194N of Income Tax : At the time of payment of such sum in cash by Banks/Post Office to recipient
  • TDS Rate u/s 194N of Income Tax Act :  2% of sum exceeding one crore rupees
  • Who has to Deduct TDS u/s 194N of Income Tax Act :Every person, being,––

    (i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

    (ii) a co-operative society engaged in carrying on the business of banking; or

    (iii) a post office,

  • When TDS will not be deducted u/s 194N of Income Tax : TDS  shall not be deducted on any payment made to the Government, any banking company, co-operative society engaged in carrying on the business of banking, post office, business correspondent of a banking company or co-operative society, engaged in carrying the business of banking, any white label automated teller machine operator of a banking company or co-operative society engaged in carrying the business of banking, or such other persons or class of persons, which the Central Government may, specify by notification in consultation with the Reserve Bank of India,.

Budget 2019 Speech of Finance Minister on Section 194N of Income Tax Act

Digital Payments
126. Mr. Speaker, Sir, our Government has taken a number of initiatives in the recent past for the promotion of digital payments and less cash economy. To promote digital payments further, I propose to take a slew of measures. To discourage the practice of making business payments in cash, I propose to levy TDS of 2% on cash withdrawal exceeding 1 crore in a year from a bank account. Further, there are low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS etc. which can be used to promote less cash economy. I, therefore, propose that the business establishments with annual turnover more than 50 crore shall offer such low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment. Necessary amendments are being made in the Income Tax Act and the Payments and Settlement Systems Act, 2007 to give effect to these provisions

2.2 TDS on cash withdrawal from banks: In order to discourage large amount of cash withdrawal from bank accounts, it is proposed to provide for tax deduction at source at the rate of 2% on cash withdrawal by a person in excess of Rs. 1 crore in a year from his bank account. Some business models, where large cash withdrawal is a necessity, are proposed to be exempted. It is also proposed that the Central Government may notify the persons to whom these provisions shall not be applicable in consultation with the Reserve Bank of India.

Section 194N of Income Tax Act :

As per Clause 46 of Finance Bill 2019 ( Dated 05.07.2019) after section 194LD of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of September, 2019,

Payment of certain amounts in cash

194N. Every person, being,––

(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

(ii) a co-operative society engaged in carrying on the business of banking; or

(iii) a post office,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent. of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to,––

(i) the Government;

(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

(iv) any white label automated teller machine 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 Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.’

Explanation of Clause 46 of Finance Bill 2019 on Section 194N Income Tax Act

Clause 46 of the Bill seeks to insert new sections 194M relating to payment of certain sums by certain individuals or Hindu undivided family and 194N relating to payment of certain amounts in cash in the Income-tax Act.

The proposed new section 194N provides that a banking company or a co-operative society engaged in carrying on the business of banking or a post office, which is responsible for paying any sum or aggregate of sums, in excess of one crore rupees in cash during the previous year to any person (referred to as the recipient in the section) from an account maintained by the recipient with such banking company or co-operative society or post office shall, at the time of payment of such amount, deduct an amount equal to two per cent. of sum exceeding one crore rupees as income-tax.

The proviso to the said section provides that the provisions of the proposed new section shall not apply to any payment made to the Government, any banking company, co-operative society engaged in carrying on the business of banking, post office, business correspondent of a banking company or co-operative society, engaged in carrying the business of banking, any white label automated teller machine operator of a banking company or co-operative society engaged in carrying the business of banking, or such other persons or class of persons, which the Central Government may, specify by notification in consultation with the Reserve Bank of India,.

These amendments will take effect from 1st September, 2019

Why Section 194N of Income Tax Act is inserted

As per Memorandum explaining Finance Bill 2019 ( Dated 05.07.2019)

C. MEASURES FOR PROMOTING LESS CASH ECONOMY

TDS on cash withdrawal to discourage cash transactions

In order to further discourage cash transactions and move towards less cash economy, it is proposed to insert a new section 194N in the Act to provide for levy of TDS at the rate of two per cent on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.
It is proposed to exempt payment made to certain recipients, such as the Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision. It is proposed to empower the Central Government to exempt other recipients, through a notification in the official Gazette in consultation with the Reserve Bank of India.

This amendment will take effect from 1st September, 2019.

[Clause 46]

 

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