TDS on Payment of certain Amounts in Cash [Section 194N]

1.   Who is liable to Deduct TDS

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 one or more accounts maintained by the recipient with it.

2.   When TDS is to be Deducted

At the time of payment of such sum, or, as the case may be, aggregate of such sums, in cash, in excess of one crore rupees during the previous year from one or more accounts maintained by the recipient with it.

3.   Rate of TDS w.e.f. 1.9.2019

2% of sum exceeding one crore rupees paid in cash, during the previous year from one or more accounts maintained by the recipient with it.

Notes:

1.       No surcharge or health and education cess shall be added to the above rates. hence, tax will be deducted at source at the basic rate

2.         The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.

4.   Where No TDS is to be Deducted at Source

(1)     No tax is to be deducted at source if any sum, or, as the case may be, aggregate of sums paid in cash, does not exceed 1 crore during the previous year from one or more accounts maintained by the recipient.

(2)        'Where any payment is 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;

Amendment made by the Finance Act, 2020

TDS on payment of certain amounts in cash [Section 194-N substituted in lieu of existing section 194-N] , [w.e.f. 1.7.2020]

The existing section 194N which was inserted by Finance (No. 2) Act, 2019 w.e.f. 1.9.2019 has been substituted by the following new section 194N:

1. TDS to be deducted from withdrawal exceeding Rs.1 Core

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, being the amount or the aggregate of amounts, as the case may be, in cash exceeding Rs. one crore during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with It shall, at the time of payment of such sum, deduct an amount equal to 2%, of such sum, as income-tax:

2. TDS to be deducted from withdrawal exceeding Rs. 20 Lakhs if the recipient has not furnished the return of income for last 3 assessment years. (First proviso to section 194N)

In case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit to file return of income under section 139(1) has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that—

(i)      the sum shall be the amount or the aggregate of amount., as the case may be, in cash exceeding Rs. 20 Lakh during the previous year: and

(ii)        the deduction shall be

(a)     an amount equal to 2%, of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds Rs. 20 Lakh during the previous year but does not exceed Rs. 1 Crore; or

(b)     an amount equal to 5%, of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds Rs. 1 Crore during the previous year:

It has been further provided that the Central Government may specify in consultation with the RBI, by notification in the Official Gazette, the recipient in whose case the first proviso shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification.

In other words, the liability to deduct tax under section 194N shall be as under: