Amendment to section 194N - TDS on cash withdrawals: Section 194N which provides for tax deduction at source (TDS) at the rate of 2% on cash withdrawal by a person in excess of Rs. 1 crore in a year from one or more bank accounts including a co-operative bank and post-office was inserted by Finance (No. 2) Act, 2019.
Section 194N dealing with TDS on cash withdrawals was applicable from 01-09-2019.
However, the said section 194N is now amended by Finance Act, 2020 by clause 83A of the Finance Bill, 2020 as passed by the Lok Sabha.
It may be noted that the amendment in section 194N was not in the original Finance Bill, 2020 which was introduced in the Parliament (Lok Sabha) on February 1, 2020.
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:
Analysis of newly amended Section 194N on TDS on Cash Withdrawals from Bank, etc., accounts from 01-07-2020
The newly amended section 194N on TDS on Cash Withdrawal has two categories of persons withdrawing cash from banks, co-operative banks, and post offices-
I. Persons withdrawing cash of more than Rs. 1 crore from one or more accounts
This provision is similar to the existing provision. A twist in this category made which relates to the filing of return of income (ITR) by the recipient (The person who is withdrawing cash from the bank or post office accounts is termed as 'recipient' in section 194N). Hence after the amended section 194N effective from July 1, 2020, this category is better to be called as –
Persons withdrawing cash from bank accounts who have filed their return of income (ITR) within due dates prescribed u/s 139(1) for last three assessment years-
In this case, if such a person withdraws cash amount or the aggregate of amounts in excess of Rs. 1 crore during the previous year, from one or more accounts maintained by the recipient (drawer of cash or account holder) with the bank or post office, then the bank or post office shall deduct TDS @ 2% of such cash withdrawal.
There is no ambiguity in respect of the threshold limit of Rs. 1 crore of cash withdrawal from TDS. However, the newly amended provision has not made it clear whether TDS shall apply on the amount of cash withdrawal in excess of Rs. 1 crore or on the entire amount of cash withdrawal once the threshold limit is exceeded.
In the erstwhile provision of section 194N, it was clearly written that TDS shall apply on cash withdrawal in excess of Rs. 1 crore. The expression used ‘deduct an amount equal to two per cent of sum exceeding one crore rupees, as income-tax’ clearly establishes the fact.
In the newly amended provision, the expression used is ‘deduct an amount equal to two per cent of such sum’. What does ‘such sum’ indicate. The ‘sum’, no doubt, refers to cash withdrawal. But for deduction of tax or TDS whether ‘such sum’ refers to cash withdrawal in excess of Rs. 1 crore or entire amount of cash withdrawal in aggregate if cash withdrawal exceeds Rs 1 crore.
A clarification from the CBDT is highly appreciable in this regard.
In my view, TDS shall apply on cash withdrawal which exceeds Rs. 1 crore and not on the entire amount of cash withdrawal. Suppose, the cash withdrawal in aggregate in a financial year is Rs. 1.75 crore, TDS shall apply only on Rs. 0.75 crore (or Rs, 75 lakh) and not on Rs. 1.75 crore. This is due to the following reasons-
2. Basically, there is no substantial change in the erstwhile and the new section 194N. The new section 194N has only added a new category of persons based on the filing of return of income to whom separate threshold limit and separate rate of TDS shall apply.
3. If we look at the different new category of persons introduced on the basis of ITR filing in the new section 194N, it can be seen that there is threshold limit of Rs. 20 lakh is provided and in case, cash withdrawal exceeds Rs. 20 Lakh then TDS shall apply only on excess cash withdrawn above Rs. 20 lakh. Going by the same analogy, the main provision shall be interpreted in such a manner that the same shall not lead to vague interpretation to give undue benefit to those who are non-filers of return of income and those who file the return of income in time.
Thus if the cash withdrawn from one or more accounts does not exceed Rs. 1 crore in a financial year, there will be no TDS. If the cash withdrawal exceeds Rs, 1 crore in multiple transactions then on crossing the limit of Rs. 1 crore, TDS shall not apply on past withdrawals. Such a procedure will also lead to various practical difficulty for the banks or post offices and to the recipients also.
It includes cash withdrawals from any type of accounts being maintained by the recipient with the bank or post office like a savings account, current account, etc.
The limit of Rs. 1 crore is bank-wise and not branch wise of a bank or post-office.
In order to avail the threshold limit of Rs. 1 crore and a lower rate of TDS of 2% on cash withdrawal, the person must have filed its return of income within due date for the last three assessment years.
II. Persons withdrawing cash from accounts who have NOT filed their returns within due dates prescribed u/s 139(1) for last three assessment years
The law has categorized these type of persons (referred here as 'non-filers') separately in the new provision. As per this provision-
A person who has not filed his or its return of income for all the last three consecutive assessment years prior to the previous year in which cash is being withdrawn and the time limit to file the return of income as prescribed in section 139(1) has expired then as per the amended provisions TDS on cash withdrawals shall apply on a different threshold limit.
In this case, the threshold limit is reduced to Rs. 20 Lakh instead of Rs. 1 crore as applicable in Category I above i.e. who has filed the return of income or ITR in due date.
For example, if a person is withdrawing cash on July 7, 2020 then the last three assessment years shall be-
Issues with the filing of return of income and cash withdrawals
It is not clear how the bank will satisfy the condition of filing of return of income by the recipient in the last three assessment years and that too filing within the due date as prescribed in section 139(1).
The task becomes more tedious and cumbersome when we have seen that the due dates were extended many a time in the past. Further, the Income Tax Act, 1961 prescribes different due dates for different types of assessees.
It is not clear what will happen to those who are not required to file the return of income due to income below the basic exemption limit. It appears that the rule of lower threshold applies if no return is filed for any reason, for example, if the person is not required to file the return of income since his total income is less than basic exemption limit. Another view that when no return is required to be filed there is no requirement to file the return of income and hence this lower threshold limit will not apply to them and the limit of Rs. 1 crore will apply to them.
Further, in the given example above, the earliest due date to file a return of income u/s 139(1) for individuals, etc. is July 31, 2020, for AY 2020-21. Suppose, on 7th July 2020, an Individual is withdrawing Rs 25 Lakh cash from his account, how can he furnish proof of return filing for AY 2020-21 when in fact he has still time available to file his return of income within the due date.
Over to all, it is not clear how the banks will ensure compliance with this requirement. If the bank starts taking a copy of ITR acknowledgement every time, it will, no doubt, only add to woes of the banks' personnel.
In case of AY 2019-20, the belated return of income can be filed up to March 31, 2020 (This date is extended to June 30, 2020 as a relief measure due to lockdown in the entire country due to COVID-19 outbreak) whereas the due date was July 31, 2019 for individuals, September 30, 2019 for companies and Tax Audit cases, November 30, 2019 for TP cases. Further, the due dates have been extended on many occasions. For example, the due date of July 31 was extended to August 31, 2019, for AY 2019-20. Similarly, for tax audit cases and companies, the due date was extended to October 31, 2019. In the case of J&K assessees, the due date is extended till 31st March 2020 for all categories of assessees.
Under the circumstances, it is not clear how the bank will ensure compliance with this requirement.
From the language of the provision, it implies that timely filing of return is mandatory for all the last three assessment years to get the benefit of higher threshold limit of Rs. 1 crore and a lower rate of TDS of 2 per cent for TDS on cash withdrawals.
The lower threshold limit of Rs. 20 lakh shall apply in case return of income is filed belatedly for any assessment year out of last three assessment years. The last three assessment years will be applicable for every previous year of cash withdrawals and hence the last three assessment years shall continue in perpetuity. Hence, those who have the history of large cash withdrawals from banks, they should file their return of income or ITRs within the prescribed due date u/s 139(1). In case the due date is extended, the ITR must be filed within the extended due date.
The lower threshold limit and a higher rate of TDS shall apply even if the return of income is filed but it is filed after the due date specified in section 139(1).
The rate of TDS in case of persons who files belated return of income or does not file return of income at all (non-filers), shall be-
*It appears that there is deliberate attempt to discourage delay in filing of return of income. The government wants people to file a timely return of income.
The filing of return of income criteria and TDS on cash withdrawals will also pose problems where the business is not in existence for three years. How the bank will ensure this fact?
Unless appropriate guidelines are issued by the RBI and/or CBDT, this compliance will be an uphill task. Different interpretation may lead to disputes between the bank and its customers. For smooth compliance, it needs integration of bank and PAN data so that the return filing status gets updated on the bank's system and TDS can be made accordingly. This seems to be a remote task for the time being.
The central government may notify categories of non-filers to whom the provisions related to the lower threshold limit of TDS on cash withdrawals shall not apply.
Section 194N provides certain exceptions where the provisions related to TDS on cash withdrawals shall not apply. The exceptions specified in the newly amended section 194N are similar to the existing exceptions.
The Central government is empowered to notify recipients (i.e. persons) in whose case the provisions of section 194N shall not apply or shall apply at a reduced rate subject to satisfaction of conditions to be specified in the notifications.
In the erstwhile provision, the Central government was empowered to notify person or class of persons to whom section 194N shall not apply. It did not have the power to apply the section 194N at a reduced rate.
The term ‘reduced rate’ is not defined. It appears that the reduced rate shall be applicable for both the threshold limit and rate of TDS.
Further, it is not clear what is the basis of the ‘reduction’ in case of threshold limit. Is it based on Rs. 1 crore or Rs. 20 Lakh? From the proviso, the power to issue the notification for non-applicability or applicability at a reduced rate is for entire section 194N. Hence it appears that the threshold limit shall be lower than Rs. 1 crore.
Similarly, for the rate of TDS, the reduced rate shall be on the basis of the 5 per cent of the rate of TDS and not on the basis of the rate of 2 per cent.
Hence, the government can not notify any threshold limit of over Rs 1 crore and the rate of TDS of above 2 per cent.
When tax shall not be required to be deducted under section 194N?
No tax shall be required to be deducted if cash withdrawal is made by the following recipients:
1. Government
2. Banking company
3. Co-operative Banks
4. Any business correspondent of a bank authorised by RBI
5. Any white label automated teller machine operator authorised issued by the RBI
6. Any other person which central government may specify by the notification
In this context, it is to be noted that CBDT has vide Notification No. 68/2019 dated 18-09-2019 exempted Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) from the purview of section 194N. The said Notification was issued under the erstwhile section 194N but is equally applicable to the newly amended section 194N.
Further exemption from section 194N was given for the withdrawal of cash from the account in excess of rupees one crore during the previous year is for the purpose of making payments to the farmers on account of purchase of agriculture produce by a 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 vide Notification No. 70/2019 dated 20-09-2019.
Also, further exemption from the provisions of section 194N is given to the following persons by the CBDT vide Notification No. 80/2019 dated 15-10-2019:
(a) the authorised dealer and its franchise agent and sub-agent; and
(b) Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent.
Section 194N dealing with TDS on cash withdrawals was applicable from 01-09-2019.
However, the said section 194N is now amended by Finance Act, 2020 by clause 83A of the Finance Bill, 2020 as passed by the Lok Sabha.
It may be noted that the amendment in section 194N was not in the original Finance Bill, 2020 which was introduced in the Parliament (Lok Sabha) on February 1, 2020.
Substitution of new section for section 194N.
‘83A. For section 194N of the Income-Tax Act, the following section shall be substituted with effect from the 1st day of July, 2020, namely:-
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, 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 to 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-
(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, 2017:
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.
Section 194N which provides for TDS on cash withdrawals has been amended in entirety by Finance Act, 2020.
The salient features of section 194N are listed below-
1. Two categories of persons: Section 194N was introduced by the Finance Act, 2019. The existing provisions will continue to apply i.e. TDS of 2 per cent on cash withdrawal of Rs. 1 crore or more in a financial year. In addition, it is provided that in case of a person who has not filed his income tax return for last three assessment years and the time limit to file the return of income u/s 139(1) is expired, then the threshold limit of Rs. 1 crore is reduced to Rs. 20 Lakh and rate of TDS shall be-
1. Two categories of persons: Section 194N was introduced by the Finance Act, 2019. The existing provisions will continue to apply i.e. TDS of 2 per cent on cash withdrawal of Rs. 1 crore or more in a financial year. In addition, it is provided that in case of a person who has not filed his income tax return for last three assessment years and the time limit to file the return of income u/s 139(1) is expired, then the threshold limit of Rs. 1 crore is reduced to Rs. 20 Lakh and rate of TDS shall be-
(a) 2 per cent from Rs. 20 Lakh to Rs. 1 crore, and
(b) 5 per cent above Rs. 1 crore.
In other cases, the threshold limit of Rs. 1 crore and the rate of TDS shall be 2 per cent above Rs. 1 crore cash withdrawal shall continue.
2. Cash Withdrawal Accounts: This section shall apply in case of cash withdrawal from a bank account including a cooperative bank and from an account held with the Post Office.
2. Cash Withdrawal Accounts: This section shall apply in case of cash withdrawal from a bank account including a cooperative bank and from an account held with the Post Office.
3. Bank-wise threshold limit: The limit of Rs. 1 crore shall apply bank-wise and not branch-wise. This is possible now due to core banking solutions implemented by banks.
4. Aggregate from all accounts: It shall apply if the aggregate amount of cash withdrawal in a financial year exceeds Rs. 1 crore from one or more bank accounts. In other words, the aggregate of cash withdrawal from the savings account, current account, cash credit account, overdraft account, etc. of the same person shall be aggregated to determine the threshold limit of Rs. 1 crore or Rs. 20 lakh, as the case may be.
5. TDS shall apply on excess cash withdrawal: If the cash withdrawal amount in a year exceeds Rs. 1 crore or Rs. 20 Lakh then TDS will apply on the excess amount of cash withdrawal over Rs. 1 crore or Rs. 20 Lakh, as the case may be, and not on the entire amount of cash withdrawal.
5. TDS shall apply on excess cash withdrawal: If the cash withdrawal amount in a year exceeds Rs. 1 crore or Rs. 20 Lakh then TDS will apply on the excess amount of cash withdrawal over Rs. 1 crore or Rs. 20 Lakh, as the case may be, and not on the entire amount of cash withdrawal.
6. Exclusions: It is applicable to all the account holders be it individual, HUF, company, etc. except government, banks, white label ATM operators, etc. who withdraws cash in excess of Rs. 1 crore in a year even if they file return of income or not.
7. The rate of TDS for cash withdrawal is 2% and 5 per cent in certain non-filers cases.
8. The purpose of cash withdrawal, whether for business or personal, is irrelevant.
Analysis of newly amended Section 194N on TDS on Cash Withdrawals from Bank, etc., accounts from 01-07-2020
The newly amended section 194N on TDS on Cash Withdrawal has two categories of persons withdrawing cash from banks, co-operative banks, and post offices-
I. Persons withdrawing cash of more than Rs. 1 crore from one or more accounts
This provision is similar to the existing provision. A twist in this category made which relates to the filing of return of income (ITR) by the recipient (The person who is withdrawing cash from the bank or post office accounts is termed as 'recipient' in section 194N). Hence after the amended section 194N effective from July 1, 2020, this category is better to be called as –
Persons withdrawing cash from bank accounts who have filed their return of income (ITR) within due dates prescribed u/s 139(1) for last three assessment years-
In this case, if such a person withdraws cash amount or the aggregate of amounts in excess of Rs. 1 crore during the previous year, from one or more accounts maintained by the recipient (drawer of cash or account holder) with the bank or post office, then the bank or post office shall deduct TDS @ 2% of such cash withdrawal.
There is no ambiguity in respect of the threshold limit of Rs. 1 crore of cash withdrawal from TDS. However, the newly amended provision has not made it clear whether TDS shall apply on the amount of cash withdrawal in excess of Rs. 1 crore or on the entire amount of cash withdrawal once the threshold limit is exceeded.
In the erstwhile provision of section 194N, it was clearly written that TDS shall apply on cash withdrawal in excess of Rs. 1 crore. The expression used ‘deduct an amount equal to two per cent of sum exceeding one crore rupees, as income-tax’ clearly establishes the fact.
In the newly amended provision, the expression used is ‘deduct an amount equal to two per cent of such sum’. What does ‘such sum’ indicate. The ‘sum’, no doubt, refers to cash withdrawal. But for deduction of tax or TDS whether ‘such sum’ refers to cash withdrawal in excess of Rs. 1 crore or entire amount of cash withdrawal in aggregate if cash withdrawal exceeds Rs 1 crore.
A clarification from the CBDT is highly appreciable in this regard.
In my view, TDS shall apply on cash withdrawal which exceeds Rs. 1 crore and not on the entire amount of cash withdrawal. Suppose, the cash withdrawal in aggregate in a financial year is Rs. 1.75 crore, TDS shall apply only on Rs. 0.75 crore (or Rs, 75 lakh) and not on Rs. 1.75 crore. This is due to the following reasons-
1. Even though there is ambiguity in the newly amended provision but the erstwhile provision is very clear on this about the applicability of TDS on excess part of cash withdrawal only.
2. Basically, there is no substantial change in the erstwhile and the new section 194N. The new section 194N has only added a new category of persons based on the filing of return of income to whom separate threshold limit and separate rate of TDS shall apply.
3. If we look at the different new category of persons introduced on the basis of ITR filing in the new section 194N, it can be seen that there is threshold limit of Rs. 20 lakh is provided and in case, cash withdrawal exceeds Rs. 20 Lakh then TDS shall apply only on excess cash withdrawn above Rs. 20 lakh. Going by the same analogy, the main provision shall be interpreted in such a manner that the same shall not lead to vague interpretation to give undue benefit to those who are non-filers of return of income and those who file the return of income in time.
Thus if the cash withdrawn from one or more accounts does not exceed Rs. 1 crore in a financial year, there will be no TDS. If the cash withdrawal exceeds Rs, 1 crore in multiple transactions then on crossing the limit of Rs. 1 crore, TDS shall not apply on past withdrawals. Such a procedure will also lead to various practical difficulty for the banks or post offices and to the recipients also.
It includes cash withdrawals from any type of accounts being maintained by the recipient with the bank or post office like a savings account, current account, etc.
The limit of Rs. 1 crore is bank-wise and not branch wise of a bank or post-office.
In order to avail the threshold limit of Rs. 1 crore and a lower rate of TDS of 2% on cash withdrawal, the person must have filed its return of income within due date for the last three assessment years.
II. Persons withdrawing cash from accounts who have NOT filed their returns within due dates prescribed u/s 139(1) for last three assessment years
The law has categorized these type of persons (referred here as 'non-filers') separately in the new provision. As per this provision-
A person who has not filed his or its return of income for all the last three consecutive assessment years prior to the previous year in which cash is being withdrawn and the time limit to file the return of income as prescribed in section 139(1) has expired then as per the amended provisions TDS on cash withdrawals shall apply on a different threshold limit.
In this case, the threshold limit is reduced to Rs. 20 Lakh instead of Rs. 1 crore as applicable in Category I above i.e. who has filed the return of income or ITR in due date.
For example, if a person is withdrawing cash on July 7, 2020 then the last three assessment years shall be-
For July 7, 2020, the Current Financial Year is 2020-21 (AY 2021-22)
Last 3 Assessment Years
Assessment Year
|
Previous Year
|
2020-21
|
2019-20
|
2019-20
|
2018-19
|
2018-19
|
2017-18
|
If cash is withdrawn on 7th July 2020, the relevant three years would be-
Since AY 2021-22 (FY 2020-21) is the current previous year in which cash is withdrawn, the same is out of the purview of section 194N.
The due date for AY 2020-21 (FY 2019-20) is still not expired. Hence cannot be considered for section 194N.
Regarding AYs 2017-18, 2018-19, and 2019-20, the due dates specified in section 139(1) have expired and hence can be only considered for the purpose of Section 194N. However, with respect to AY 2019-20, one can still be able to file a belated return till July 31, 2020.
Issues with the filing of return of income and cash withdrawals
It is not clear how the bank will satisfy the condition of filing of return of income by the recipient in the last three assessment years and that too filing within the due date as prescribed in section 139(1).
The task becomes more tedious and cumbersome when we have seen that the due dates were extended many a time in the past. Further, the Income Tax Act, 1961 prescribes different due dates for different types of assessees.
It is not clear what will happen to those who are not required to file the return of income due to income below the basic exemption limit. It appears that the rule of lower threshold applies if no return is filed for any reason, for example, if the person is not required to file the return of income since his total income is less than basic exemption limit. Another view that when no return is required to be filed there is no requirement to file the return of income and hence this lower threshold limit will not apply to them and the limit of Rs. 1 crore will apply to them.
Further, in the given example above, the earliest due date to file a return of income u/s 139(1) for individuals, etc. is July 31, 2020, for AY 2020-21. Suppose, on 7th July 2020, an Individual is withdrawing Rs 25 Lakh cash from his account, how can he furnish proof of return filing for AY 2020-21 when in fact he has still time available to file his return of income within the due date.
Over to all, it is not clear how the banks will ensure compliance with this requirement. If the bank starts taking a copy of ITR acknowledgement every time, it will, no doubt, only add to woes of the banks' personnel.
Different Due dates for different categories of assessees under section 139(1) of the Income Tax Act, 1961
Categories of Assessees
|
Due Date of filing of return upto March
2020
(upto AY 2019-20)
|
Due Date of filing of return from April
2020
(from AY 2020-21)
|
Assessees
subject to Transfer Pricing case whom Form 3CEB applies
|
November
30
|
November
30
|
Company
and Tax Audit Cases
|
September
30
|
October
31
|
Working
partner of a tax audit applicable firm
|
September
30
|
October
31
|
Non-Working
partner of a tax audit applicable firm
|
July
31
|
October
31
|
Any
other case-
Individuals,
HUF, etc.
|
July
31
|
July
31
|
In case of AY 2019-20, the belated return of income can be filed up to March 31, 2020 (This date is extended to June 30, 2020 as a relief measure due to lockdown in the entire country due to COVID-19 outbreak) whereas the due date was July 31, 2019 for individuals, September 30, 2019 for companies and Tax Audit cases, November 30, 2019 for TP cases. Further, the due dates have been extended on many occasions. For example, the due date of July 31 was extended to August 31, 2019, for AY 2019-20. Similarly, for tax audit cases and companies, the due date was extended to October 31, 2019. In the case of J&K assessees, the due date is extended till 31st March 2020 for all categories of assessees.
Under the circumstances, it is not clear how the bank will ensure compliance with this requirement.
From the language of the provision, it implies that timely filing of return is mandatory for all the last three assessment years to get the benefit of higher threshold limit of Rs. 1 crore and a lower rate of TDS of 2 per cent for TDS on cash withdrawals.
The lower threshold limit of Rs. 20 lakh shall apply in case return of income is filed belatedly for any assessment year out of last three assessment years. The last three assessment years will be applicable for every previous year of cash withdrawals and hence the last three assessment years shall continue in perpetuity. Hence, those who have the history of large cash withdrawals from banks, they should file their return of income or ITRs within the prescribed due date u/s 139(1). In case the due date is extended, the ITR must be filed within the extended due date.
The lower threshold limit and a higher rate of TDS shall apply even if the return of income is filed but it is filed after the due date specified in section 139(1).
The rate of TDS in case of persons who files belated return of income or does not file return of income at all (non-filers), shall be-
Aggregate amount of Cash Withdrawals
in a previous year
|
Rate of TDS
|
Upto Rs. 20 lakh
|
Nil
|
More than Rs. 20 lakh but upto Rs. 1 crore
|
2%
|
More than Rs. 1 crore
|
5%*
|
*In case
of filers, the rate of TDS in this
case is 2%
|
|
*It appears that there is deliberate attempt to discourage delay in filing of return of income. The government wants people to file a timely return of income.
Update:
Based on a user comment, there is another interpretation under which a belated return is also a return filed for this purpose. However, as stated earlier, this amendment was not a part of the Finance Bill, 2020 tabled on the Parliament and as such, the memorandum does not contain anything about it. However, every year after the enactment of the Finance Act, CBDT issued an explanatory circular which is yet to be issued for the Finance Act, 2020 which may bring clarity.
The filing of return of income criteria and TDS on cash withdrawals will also pose problems where the business is not in existence for three years. How the bank will ensure this fact?
Unless appropriate guidelines are issued by the RBI and/or CBDT, this compliance will be an uphill task. Different interpretation may lead to disputes between the bank and its customers. For smooth compliance, it needs integration of bank and PAN data so that the return filing status gets updated on the bank's system and TDS can be made accordingly. This seems to be a remote task for the time being.
The central government may notify categories of non-filers to whom the provisions related to the lower threshold limit of TDS on cash withdrawals shall not apply.
Section 194N provides certain exceptions where the provisions related to TDS on cash withdrawals shall not apply. The exceptions specified in the newly amended section 194N are similar to the existing exceptions.
The Central government is empowered to notify recipients (i.e. persons) in whose case the provisions of section 194N shall not apply or shall apply at a reduced rate subject to satisfaction of conditions to be specified in the notifications.
In the erstwhile provision, the Central government was empowered to notify person or class of persons to whom section 194N shall not apply. It did not have the power to apply the section 194N at a reduced rate.
The term ‘reduced rate’ is not defined. It appears that the reduced rate shall be applicable for both the threshold limit and rate of TDS.
Further, it is not clear what is the basis of the ‘reduction’ in case of threshold limit. Is it based on Rs. 1 crore or Rs. 20 Lakh? From the proviso, the power to issue the notification for non-applicability or applicability at a reduced rate is for entire section 194N. Hence it appears that the threshold limit shall be lower than Rs. 1 crore.
Similarly, for the rate of TDS, the reduced rate shall be on the basis of the 5 per cent of the rate of TDS and not on the basis of the rate of 2 per cent.
Hence, the government can not notify any threshold limit of over Rs 1 crore and the rate of TDS of above 2 per cent.
When tax shall not be required to be deducted under section 194N?
No tax shall be required to be deducted if cash withdrawal is made by the following recipients:
1. Government
2. Banking company
3. Co-operative Banks
4. Any business correspondent of a bank authorised by RBI
5. Any white label automated teller machine operator authorised issued by the RBI
6. Any other person which central government may specify by the notification
In this context, it is to be noted that CBDT has vide Notification No. 68/2019 dated 18-09-2019 exempted Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller Machine Operators (WLATMO’s) from the purview of section 194N. The said Notification was issued under the erstwhile section 194N but is equally applicable to the newly amended section 194N.
Further exemption from section 194N was given for the withdrawal of cash from the account in excess of rupees one crore during the previous year is for the purpose of making payments to the farmers on account of purchase of agriculture produce by a 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 vide Notification No. 70/2019 dated 20-09-2019.
Also, further exemption from the provisions of section 194N is given to the following persons by the CBDT vide Notification No. 80/2019 dated 15-10-2019:
(a) the authorised dealer and its franchise agent and sub-agent; and
(b) Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent.
Section 194N was introduced in order to discourage cash transactions and move towards a less-cash economy.
Cash Withdrawal is not Income
Section 198 of the Income Tax Act, 1961 is amended to provide for the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall not be deemed to be income received. In other words, the amount of cash withdrawal on which tax is deducted under section 194N shall not be considered as income of the recipient.
Credit for TDS deducted on cash withdrawals under section 194N
Through Notification No. 74/2019 dated 27-09-2019, the CBDT has notified the rules regarding claiming of the tax credit for tax deducted at source (TDS) by banks on withdrawal of cash from an account(s) under section 194N exceeding Rs 1 crore in a financial year.
The said notification issued by the CBDT states: "In the Income-tax Rules, 1962, in rule 37BA, after sub-rule (3), the following sub-rule shall be inserted, namely:-
Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), 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."
Rule 37BA of the Income Tax Rules, 1962 deals with the rules and process of claiming TDS credit.
The person can claim the credit of the TDS under section 194N in his/its return of income. The credit will be allowed even if the person has no income under any heads of income. Further, the credit of such TDS can be adjusted with the tax liability of the person. Any remaining or excess credit of TDS will be refunded to such person.
However, in case of credit of TDS for section 194N, the option to pass on the credit to another person is not available. It has to be claimed only by the person from whom tax is deducted. In other words, the credit for tax deducted at source under section 194N shall be available to the deductee only.
Further, such credit of TDS on cash withdrawals shall be claimed in the year in which it is deducted. It cannot be carried forward for subsequent year(s) as is allowed by Rule 37BA for other credits.
TDS Challan and TDS Return under section 194N
CBDT has issued a Notification No. 98/2019 dated 18.11.2019 to amend the Rule 30, Rule 31 and Rule 31A of the Income Tax Rules, 1962 to notify the challan, TDS return and due date of TDS payment under section 194N.
Update:
Online Tool to determine TDS rate u/s #194N launched by Income tax dept.
Cash Withdrawal is not Income
Section 198 of the Income Tax Act, 1961 is amended to provide for the sum deducted in accordance with the provisions of section 194N for the purpose of computing the income of an assessee, shall not be deemed to be income received. In other words, the amount of cash withdrawal on which tax is deducted under section 194N shall not be considered as income of the recipient.
Credit for TDS deducted on cash withdrawals under section 194N
Through Notification No. 74/2019 dated 27-09-2019, the CBDT has notified the rules regarding claiming of the tax credit for tax deducted at source (TDS) by banks on withdrawal of cash from an account(s) under section 194N exceeding Rs 1 crore in a financial year.
The said notification issued by the CBDT states: "In the Income-tax Rules, 1962, in rule 37BA, after sub-rule (3), the following sub-rule shall be inserted, namely:-
Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), 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."
Rule 37BA of the Income Tax Rules, 1962 deals with the rules and process of claiming TDS credit.
The person can claim the credit of the TDS under section 194N in his/its return of income. The credit will be allowed even if the person has no income under any heads of income. Further, the credit of such TDS can be adjusted with the tax liability of the person. Any remaining or excess credit of TDS will be refunded to such person.
However, in case of credit of TDS for section 194N, the option to pass on the credit to another person is not available. It has to be claimed only by the person from whom tax is deducted. In other words, the credit for tax deducted at source under section 194N shall be available to the deductee only.
Further, such credit of TDS on cash withdrawals shall be claimed in the year in which it is deducted. It cannot be carried forward for subsequent year(s) as is allowed by Rule 37BA for other credits.
TDS Challan and TDS Return under section 194N
CBDT has issued a Notification No. 98/2019 dated 18.11.2019 to amend the Rule 30, Rule 31 and Rule 31A of the Income Tax Rules, 1962 to notify the challan, TDS return and due date of TDS payment under section 194N.
Update:
Online Tool to determine TDS rate u/s #194N launched by Income tax dept.
CBDT issues Clarification on Notification Issued under erstwhile Section 194N
Suggested Readings on Section 194N
Changes proposed in Income-Tax by the Finance Bill 2019
Suggested Readings on Section 194N
Changes proposed in Income-Tax by the Finance Bill 2019
CBDT Notifications issued so far under section 194N
Notification No. 68/2019 dt 18-09-2019 on Exemption from section 194N
Notification No. 70/2019 dt 20-09-2019 on Exemption from section 194N
Notification No. 74/2019 dt 27-09-2019 on Credit of TDS
Notification No. 80/2019 dt 15-10-2019 on Exemption from section 194N
Notification No. 98/2019 dt 18-11-2019 on Challan and Return
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12 Comments
I think author has mis interpreted the first proviso. "for which time limit u/s 139(1) has been expired" is related to previous year and not for return. Means if time limit u/s 139(1) has not been expired then return for that previous year need not to see whether filed or not . Return filed within due date or belatedly is not relevant.
ReplyDeleteThank you for pointing it out. It would have been better if you had published your name too with the comments. I have updated and inserted a new section in the article based on your comments.
DeleteSir i had a another doubt
ReplyDeleteIf person filed application to cbdt for condonation of delay u/s119(2)(b) if return filed under this section
Still it can be treated as filed u/s139(1)?
To my view, it should be
DeleteI m a business correspondent on fino payment bank. My settlement account is in union bank of india. I have submitted tds letter issued by fino payment bank in union bank of india, but 22900rs got deducted towards tds.. on 4th august,
ReplyDeleteWhat should i do????
Suppose a person X had not filed IT returns for the last 3 years and withdrawn cash of Rs.22,00,000/- on 01-06-2020 and after that no transaction was made, whether the Bank can deduct TDS on Rs.222,00,000/- which was prior to 01.07.2020.
ReplyDeleteNo
Deleteis there any specific compliance for section 194N in Tax Audit report
ReplyDeleteIf any schools saving bank account got deducted TDS 194N @20% rate due to non submission of PAN in account , after that the submitted PAN of society under which that school account open,.
ReplyDeleteBut TDS is not showing in 26AS.
Kindly guide us that it is refundable or not?
If yes then what is the procedure for return the same.
Approach bank and insist them to file a correction TDS return with your PAN
Deletesir,
ReplyDeletei have filed return for last five years, still TDS is deducted under 194N, the transaction was done in mar 2021.
it is showing in my 26 AS but while filling return TDS is not reflected. how to claim it.
There are tons of Articles in the internet interpreting the section 194N again and again.But everyone tries to avoid answers on the procedure to claim refund for deduction u/s 194N.The Income tax of India website clearly states that a person cannot file ITR -1 if tax has been deducted u/s 194N.It's understood that persons having business and/or other income have a few options while filing the return.But what are the options for a salaried individual whose tax has been deducted u/s 194N and the cash withdrawal was not related to his salary or any business for profit.How to claim refund in that case?
ReplyDelete