Section 194N TDS on Cash Withdrawals: When and How to Report

Section 194N of the Income Tax Act deals with the Tax Deducted at Source (TDS) on cash withdrawals exceeding a specified threshold. The provision aims to curb the use of black money and promote transparency in financial transactions. It is important for individuals, businesses, and financial institutions to understand the implications of Section 194N, as non-compliance can lead to penalties and interest. In this article, we will break down the key features of Section 194N, its applicability, TDS deduction rates, how it is triggered, and how to properly report it in your tax returns.

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Table of Contents

• What is Section 194N?

• Applicability and Thresholds

• TDS Deduction Rates & Limits

• When is Section 194N Triggered?

• How to Report TDS under Section 194N

• Exceptions and Points to Note

• Latest News and Updates

• How to Report TDS on Cash Withdrawals

• Conclusion

• FAQs

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What is Section 194N?

Section 194N was introduced to prevent the generation of unaccounted cash flows and discourage the hoarding of black money. Under this section, banks, post offices, and other financial institutions are required to deduct tax at source when an individual or entity withdraws cash exceeding a certain threshold in a financial year. The TDS is deducted at the time of withdrawal, which is then deposited with the government. The section aims to promote transparency and traceability in large cash transactions by discouraging cash dealings above the prescribed limit.

Applicability and Thresholds

Section 194N applies to cash withdrawals made by individuals, HUFs, firms, and other non-corporate entities. The thresholds for cash withdrawals are as follows:

• Threshold for Non-Filers: If an individual or entity has not filed income tax returns for the last three years, any cash withdrawal exceeding ₹20 lakh in a financial year will attract TDS under Section 194N.
  

• Threshold for Filers: For taxpayers who have filed income tax returns for the last three years, the threshold is increased to ₹1 crore. Cash withdrawals above this limit will be subject to TDS.

The applicability of Section 194N depends on whether the individual or entity is a filer or non-filer of income tax returns. If the individual or entity is a non-filer, the threshold is significantly lower, and TDS is applicable at a higher rate.

TDS Deduction Rates & Limits

Section 194N mandates that TDS be deducted at the time of withdrawal. The rate at which TDS is deducted depends on the total amount withdrawn:

• For non-filers: The TDS rate is 2% if the cash withdrawal exceeds ₹20 lakh in a financial year.
  

• For filers: The TDS rate is 0.1% if the cash withdrawal exceeds ₹1 crore in a financial year.

It is important to note that if the amount withdrawn exceeds the threshold, the TDS will be deducted on the entire amount exceeding the limit, not just the portion above the threshold. For example, if a filer withdraws ₹1.2 crore, the TDS of 0.1% will apply to the entire ₹1.2 crore.

When is Section 194N Triggered?

Section 194N is triggered when the cash withdrawal from a bank account, post office account, or any other financial institution exceeds the prescribed threshold during the financial year. This threshold applies to cumulative withdrawals during the year and not individual withdrawals. For example, if a taxpayer makes several withdrawals over the course of the year and their total withdrawals exceed ₹20 lakh (for non-filers) or ₹1 crore (for filers), TDS will be applicable on the total amount withdrawn.

The tax is deducted at the time of withdrawal and deposited with the government, and the individual or entity is required to report the TDS deduction when filing their income tax return.

How to Report TDS under Section 194N

TDS under Section 194N must be reported in your income tax return under the section for TDS deductions. Taxpayers should ensure that the TDS deducted at the time of cash withdrawals is correctly reflected in their Form 26AS, which is a summary of all taxes deducted and paid on their behalf.

To report TDS under Section 194N:

• Check Form 26AS: Verify that the TDS deducted on cash withdrawals is listed in your Form 26AS. This form can be accessed through the Income Tax Department's e-filing portal.
  

• Include in ITR: While filing your income tax return, ensure that the TDS deducted under Section 194N is included in the appropriate section. This will help reduce your total tax liability, as the amount deducted will be adjusted against the tax you owe.
  

• Claim Refund if Applicable: If excess TDS is deducted or if the TDS deducted exceeds your tax liability, you can claim a refund while filing your return.

Exceptions and Points to Note

While Section 194N generally applies to cash withdrawals, there are a few important exceptions and points to keep in mind:

• Section 194N does not apply to withdrawals made for non-cash purposes: This includes instances where cash is withdrawn but used to buy instruments like demand drafts or pay for services.
  

• Non-TDS Deduction: If the withdrawal is made by a government organization or an entity that is exempt under the Income Tax Act, then TDS may not apply.

Additionally, taxpayers should note that the TDS deducted under Section 194N cannot be avoided by splitting large withdrawals into smaller amounts. The TDS is applicable based on the cumulative withdrawals during the year.

Latest News and Updates

The introduction of Section 194N has been part of the Indian government's ongoing efforts to increase transparency in financial transactions and reduce unaccounted cash flows. The threshold for TDS deduction was revised in the recent budget to encourage taxpayers to file their returns and ensure that TDS is deducted only from high-value withdrawals.

Updates on Section 194N can be found regularly through the Income Tax Department’s official announcements, which clarify any changes to thresholds, rates, and processes. The government continues to focus on digitizing and modernizing the tax filing process, and Section 194N is an essential part of this strategy.

How to Report TDS on Cash Withdrawals

Tax Deducted at Source (TDS) on cash withdrawals is a provision introduced under Section 194N of the Income Tax Act. This section applies to individuals, HUFs (Hindu Undivided Families), and certain other taxpayers when they withdraw cash exceeding ₹20 lakh in a financial year from a bank or a cooperative bank. If you’re liable to report TDS on cash withdrawals, follow these steps to ensure proper reporting and avoid any discrepancies:

1. Ensure TDS is Reflected in Your Form 26AS

The first step in reporting TDS on cash withdrawals is to check if the TDS deducted by the bank is accurately reflected in your Form 26AS. Form 26AS is a consolidated tax statement that contains details of taxes deducted at source, including TDS on cash withdrawals.

• Log into your Income Tax e-filing account and download Form 26AS from the "Tax Credit Statement" section. You can also access it through the TRACES portal.
  

• Verify that the TDS deducted is listed under the section related to cash withdrawals (usually under section 194N).
  

• Ensure that the amount mentioned matches the TDS deducted by the bank based on the cash withdrawals made during the year.

If the TDS isn’t reflected in Form 26AS, it could mean that the bank has not submitted the tax information correctly. In such cases, you should contact the bank for clarification.

2. Include TDS Amount in the ITR Form

Once you confirm that the TDS on cash withdrawals is correctly reflected in your Form 26AS, you can proceed to file your Income Tax Return (ITR). Follow the steps below to report the TDS amount accurately in your return:

• Open the relevant ITR form: Depending on your income sources, you will need to choose the appropriate ITR form. For individuals with income from salary, other sources, or business, you’ll typically file using ITR-1, ITR-2, or ITR-3.
  

• Navigate to the TDS section: In the ITR form, locate the section for reporting TDS. It is usually found under the "Tax Paid and Verification" section. Here, you will need to provide the TDS details from Form 26AS.
  

• Enter the TDS on cash withdrawals: In the section for TDS on cash withdrawals (Section 194N), enter the exact amount of TDS deducted as per your Form 26AS. Ensure the amount corresponds to the details provided by your bank.

It is crucial that the TDS details match those shown in Form 26AS to avoid any discrepancies with the Income Tax Department.

3. Claiming a Refund if TDS Exceeds Tax Liability

One of the main reasons for reporting TDS on cash withdrawals is to ensure that you don’t end up paying more tax than you owe. If the total TDS deducted on your cash withdrawals exceeds your actual tax liability, you can apply for a refund.

• Calculate your tax liability: During the tax filing process, calculate your total tax liability based on your income. You can use TaxBuddy’s AI-driven tools for quick and accurate tax calculations, or you can use the online tax calculators provided by the Income Tax Department.
  

• Compare TDS with tax liability: If the total TDS exceeds your calculated tax liability, the excess amount will be eligible for a refund. The system will automatically calculate the refund amount when you file your ITR.
  

• File for the refund: Once your ITR is filed and processed, the Income Tax Department will process your refund request and transfer the excess amount to your bank account, typically within a few weeks (if there are no issues with your return).

If the TDS amount is less than your actual tax liability, you’ll need to pay the difference while filing your return.

4. Keep Track of the TDS Filing Status

Once the TDS has been reported in your ITR, it's important to track the status of your return to ensure the refund is processed correctly.

• Check your ITR status: After filing your return, you can check the status of your ITR on the Income Tax e-filing portal. It will show whether your return is under processing or if the refund has been issued.
  

• Refund issues: If there are any issues with the refund, such as incorrect details or delays, you can raise a query with the Income Tax Department or contact the bank to verify the TDS deduction status.

Conclusion

Section 194N is an essential provision introduced by the Income Tax Department to promote transparency and reduce black money by imposing TDS on cash withdrawals above specified limits. Taxpayers should be aware of the thresholds, TDS rates, and the importance of reporting the TDS deduction correctly in their returns. By staying informed and filing accurately, taxpayers can avoid penalties and ensure compliance with the tax laws. For anyone looking for assistance in managing their ITR filing, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.

FAQs

Q1: What is the TDS rate under Section 194N for non-filers?

Under Section 194N, if non-filers withdraw cash exceeding ₹20 lakh in a financial year, a TDS of 2% is applicable. The term "non-filers" refers to individuals or entities that have not filed their tax returns for the past three years. This rate ensures that non-filers are subject to a higher tax deduction due to their lack of compliance with filing obligations.

Q2: How does Section 194N affect businesses?

Section 194N impacts businesses that make cash withdrawals exceeding the specified limits in a financial year. If a business withdraws more than ₹20 lakh in cash in a year, the bank or financial institution will deduct 2% TDS. Businesses should keep track of all cash withdrawals and ensure that the correct amount of TDS is deducted. Businesses must report these TDS deductions when filing their income tax returns to avoid discrepancies.

Q3: Can I avoid TDS by withdrawing smaller amounts?

No, TDS under Section 194N applies to the cumulative cash withdrawals in a financial year. So, even if you withdraw smaller amounts throughout the year, once the total cash withdrawals exceed ₹20 lakh, TDS will be applied to the entire sum. It's important to monitor total withdrawals to avoid hitting the threshold that triggers the TDS deduction.

Q4: How do I check if TDS under Section 194N is deducted?

You can check the TDS deductions in Form 26AS, which is available on the Income Tax Department’s e-filing portal. Form 26AS will reflect all the TDS amounts that have been deducted on your behalf, including any under Section 194N. This form is your official record and can be used to verify whether the correct amount of TDS has been deducted.

Q5: Is Section 194N applicable to withdrawals from all banks?

Yes, Section 194N applies to all banks, post offices, and other financial institutions that handle cash withdrawals. Whether you withdraw cash from a nationalized bank, private bank, or post office, the TDS provisions under Section 194N are applicable if your withdrawal exceeds the prescribed limit for non-filers or filers.

Q6: Does Section 194N apply to withdrawals made for investment purposes?

No, Section 194N applies specifically to cash withdrawals. It does not apply to transactions such as investments, transfers, or withdrawals made via cheque or digital payment methods. Only cash withdrawals exceeding ₹20 lakh for non-filers or ₹1 crore for filers will be subject to TDS under this section.

Q7: What happens if the TDS deducted under Section 194N exceeds my tax liability?

If the TDS deducted under Section 194N exceeds your actual tax liability, you can claim the excess amount as a refund when filing your income tax return. The refund will be processed after the Income Tax Department verifies the details in your return and Form 26AS. It is important to ensure that all TDS deductions are accurately reported to avoid discrepancies and ensure a smooth refund process.

Q8: How can I avoid penalties related to Section 194N?

To avoid penalties related to Section 194N, ensure that you are aware of the cash withdrawal limits and that the TDS is correctly deducted by the bank or financial institution. Make sure to verify the deductions in your Form 26AS and report them accurately in your ITR. By doing so, you can avoid penalties for incorrect or omitted TDS reporting.

Q9: Can I file a revised return to correct TDS under Section 194N?

Yes, if there are discrepancies in the TDS reported, such as errors or omissions in the deduction, you can file a revised return under Section 139(5) before the end of the assessment year. The revised return allows you to correct the TDS details, ensuring that your filing is accurate and up to date. It is important to file the revised return as soon as possible to avoid any penalties or issues with your tax return.

Q10: What is the threshold for TDS deduction under Section 194N for filers?

For individuals who have filed their income tax returns in the last three years, the threshold for TDS under Section 194N is ₹1 crore. This means that if a filer withdraws more than ₹1 crore in a financial year, the bank will deduct TDS at the rate of 0.1%. It is essential for filers to be aware of this limit to avoid unexpected TDS deductions on large cash withdrawals.

Q11: Does Section 194N apply to non-residents?

Yes, Section 194N applies to non-residents as well. Non-residents who withdraw cash exceeding the prescribed limits of ₹20 lakh (for non-filers) or ₹1 crore (for filers) are subject to TDS under this section. Non-residents should be mindful of this provision when making cash withdrawals in India, as the TDS will be deducted at the applicable rates.

Q12: How do I report TDS deducted under Section 194N in my ITR?

To report TDS deducted under Section 194N in your ITR, you should enter the TDS details in the TDS section of the Income Tax Return form. Ensure that the TDS amount shown in your Form 26AS is accurately reflected in your ITR. This will ensure that your tax liability is correctly calculated and that any excess TDS can be claimed as a refund if applicable.