TDS under section 194N- Changes applicable from 1st July 2020

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The Finance Act 2019 had introduced a new section 194N in the Income Tax Act 1961, to provide for levy of tax deduction at source (TDS) @ 2% on cash payments in excess of rupees one crore in aggregate made during the year, by a Banking Company or Co-operative Bank or post office to any person from one or more accounts with it maintained by such person. There were major changes made from FY 2020-21. This changes came in to effect from 01st July 2020. Full text of the amended section is as follows:

TDS under section 194N of the income tax act

Payment of certain amounts in cash.

194N. Every person, being,—

(i) a banking company to which the Banking Regulation Act, 1949 (10 of 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 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 shall, at the time of payment of such sum, deduct an amount equal to two per cent of such sum, as income-tax:

Provided that 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 of file return of income under sub-section (1) of section 139 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 amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and
(ii) the deduction shall be-
(a) an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
(b) an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

Provided further that the Central Government may specify in consultation with the Reserve Bank of India, 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:

Provided also that nothing contained in this section shall apply to any payment made to-
(Section 194N is not applicable 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 (2 of 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 (51 of 2007):

Provided also that the Central Government may specify in consultation with the Reserve Bank of India, by notification in the Official Gazette, the recipient in whose case the provision of this section shall not apply or apply at reduced rate, if such recipient satisfies the conditions specified in such notification.]

Summary of the TDS rate u/s 194N:

Category

Threshold amount

TDS rate

Person who has not filed Income tax returns for latest three financial year within due date u/s 139(1)

Above 20 lakhs to Rs. 1 Crore

2%

Above Rs. 1 Crore

5%

Other persons

Up to Rs. 1 Crore

Nil

Above Rs. 1 Crore

2%

Income tax has launched utility to check applicability of TDS on cash withdrawal. You can check here 
https://www1.incometaxindiaefiling.gov.in/e-FilingGS/Services/ViewReturnStatusLink.html?lang=eng

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