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TDS on cash withdrawals

Section 194N provides that every banking company, cooperative bank, or post office shall be
required to deduct tax at source from any sum paid in cash from one or more accounts
maintained by the recipient. The tax shall be deducted at the rate of 2% or 5% as the case
may be.
Who is required to deduct tax under this section?
Every banking company (including any bank or banking institution), co-operative bank, or a
post-office, which is responsible for payment of cash to a person, from one or more accounts
maintained by him, shall be required to deduct tax under this provision. The tax shall be
deducted at the time of payment.
Who is a deductee?
Tax is required to be deducted in all cases, whether the deductee is a resident or non-resident.
Rate of TDS and threshold limit
If no default is made in the filing of the return
Tax is required to be deducted at the rate of 2% of the sum if the aggregate of the amount
withdrawn exceeds Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society1).
The rate shall not be further increased by Surcharge and Health & Education Cess if the sum
is payable to a resident person. The rate of TDS shall be increased by the applicable
surcharge and health & education cess if the payee is a non-resident person or a foreign
company. If the deductee does not furnish his PAN to the deductor, the tax shall be deducted
at the rate of 20% under Section 206AA.
If a person defaults in the filing of a return
If a person has not filed a return of income for all of the three assessment years immediately
preceding the previous year in which cash is withdrawn, and the due date for filing the return
under section 139(1) has expired, the tax shall be deducted at the rates specified:
a) At the rate of 2% of the sum, if the aggregate of the amount withdrawn exceeds Rs.
20 lakhs during the previous year but does not exceed Rs. 1 crore (Rs. 3 crores where
the recipient is a co-operative society2);
b) At the rate of 5% of the sum, if the aggregate of the amount withdrawn exceeds Rs. 1
crore (Rs. 3 crores where the recipient is a co-operative society3) during the previous
year.
How to check the return filing status?
The Department has provided a utility of "ITR Filing Compliance Check" on
https://report.insight.gov.in which will be available to Scheduled Commercial Banks (SCBs)
to check the IT Return filing status in bulk mode on the basis of the PAN of the deductee.

1
Amendment made by the Finance Act, 2023 with effect from 01.04.2023.
2
Amendment made by the Finance Act, 2023 with effect from 01.04.2023.
3
Amendment made by the Finance Act, 2023 with effect from 01.04.2023.

[As amended by Finance (No. 2) Act, 20 24]

Exemption from TDS
No tax is required to be deducted from any sum paid or payable to the following:
a) The Government
b) Any banking company or a co-operative bank or a post office
c) Any business correspondent of a banking company or a co-operative bank in
accordance with the RBI guidelines
d) Any white-label automated teller machine (ATM) operator of a banking company or a
co-operative bank in accordance with the RBI Authorisation; or
e) Any person specified by the Central Government. Further, Central Government is
empowered to specify the reduced rate for the deduction of tax under this provision.
How to deposit TDS?
Tax deducted under this provision is required to be deposited to the credit of the Central
Government through Challan ITNS 281 within 7 days from the end of the month in which tax
was deducted.
However, the tax deducted during the month of March shall be deposited by 30th April of the
next financial year.
Filing of TDS statement
The person responsible for the deduction of tax at source under this provision is required to
file a statement of tax deducted at source in Form 26Q quarterly.
TDS Certificate
The deductor shall issue a TDS certificate to the assessee in Form No. 16A within 15 days
from the due date of furnishing of the TDS statement.
Consequences for failure to deduct or deposit tax
Where any person responsible for deducting tax at source fails to deduct tax or after
deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case,
interest under section 201 will be applicable.
If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month
shall be applicable, till such failure continues. Interest shall be calculated from the date when
such tax was required to be deducted till the date such tax is actually deducted.
Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of
the Central Government, interest at the rate of 1.5% per month or part thereof shall be
applicable till such failure continues. The interest computation shall commence from the date
on which the tax was deducted and end with the date when such tax was deposited to the
government.
Penalty and Prosecution
Failure to comply with the provisions of deduction of tax at source under this provision may
result in penalties and prosecution as per the following provisions:
a) If a person fails to deduct tax at source, he shall be liable for payment of penalty
under Section 271C;
b) If a person deducts tax but fails to deposit the same to the credit of the Central
Government, he shall be liable for the penalty under Section 221 and prosecution
under Section 276B.

[As amended by Finance (No. 2) Act, 20 24]

However, no person shall be punishable under Section 276B if he proves that there was
reasonable cause for the failure. Further, a person can also file an application for
compounding of offence.
Consequences for failure to furnish TDS Statement?
Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein
the deductor is liable to pay fees at the rate of Rs. 200 per day during such default continues.
However, such fees should not exceed the amount of TDS.
Moreover, he shall be liable for penalties under sections 271H of Rs. 10,000 which can be
extended to Rs. 100,000, and 272A of Rs. 500 for every day during which failure continues.
Consequences for failure to issue TDS Certificates
Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a
penalty under section 272A shall be applicable of Rs. 500 for every day during which failure
continues.

[As amended by Finance (No. 2) Act, 20 24]

 MCQs on Payment of Certain amounts in Cash

Q1. Tax under section 194N is required to be deducted by _________.

(a) Banking Company
(b) Co-operative bank
(c) Post-office
(d) All of the above
Correct answer: (d)
Justification of the correct answer: Every banking company (including any bank or
banking institution), co-operative bank, or a post-office, which is responsible for payment of
cash to a person, from one or more accounts maintained by him, shall be required to deduct
tax under Section 194N.
Q2. Tax is required to be deducted in case where the deductee is a non-resident.
(a) True
(b) False
Correct answer: (a)
Justification of the correct answer: Tax is required to be deducted in all cases whether the
deductee is a resident or non-resident.
Q3: What is the threshold limit to deduct tax under section 194N, where no default is
made in the filing of the return by the deductee who is an individual?
(a) Rs. 1 crore
(b) Rs. 20 lakhs
(c) Rs. 50 lakhs
(d) No limit
Correct answer: (a)
Justification of the correct answer: Where no default is made in the filing of the return i.e.,
deductee has filed its return of income timely, tax is required to be deducted if the aggregate
of the amount withdrawn exceeds Rs. 1 crore (Rs. 3 crores where the recipient is a co-
operative society).
Q4: No tax under section 194N is required to be deducted if cash withdrawal is made by
_________.
(a) Any banking company or a co-operative bank or a post office
(b) Any white-label automated teller machine (ATM) operator of a banking company or a
co-operative bank in accordance with the RBI Authorisation
(c) The Government
(d) All of the above
Correct answer: (d)
Justification of the correct answer: No tax is required to be deducted from any sum paid or
payable to the following:
a) The Government

[As amended by Finance (No. 2) Act, 20 24]

 b) Any banking company or a co-operative bank or a post office
c) Any business correspondent of a banking company or a co-operative bank in
accordance with the RBI guidelines
d) Any white-label automated teller machine (ATM) operator of a banking company or a
co-operative bank in accordance with the RBI Authorisation; or
e) Any person specified by the Central Government. Further, Central Government is
empowered to specify the reduced rate for the deduction of tax under this provision.
Q5: Tax deducted under this provision is required to be deposited to the credit of the
Central Government through _________.
(a) Challan ITNS 281
(b) Challan ITNS 280
(c) Challan ITNS 283
(d) None of the above
Correct answer: (a)
Justification of the correct answer: Tax deducted under this provision is required to be
deposited to the credit of the Central Government through Challan ITNS 281 within 7 days
from the end of the month in which tax was deducted. However, the tax deducted during the
month of March shall be deposited by 30th April of the next financial year.
Q6: The person responsible for the deduction of tax at source under this provision is
required to file a statement of tax deducted at source in __________.
(a) Form 26Q
(b) Form 24Q
(c) Form 27Q
(d) None of the above
Correct answer: (a)
Justification of the correct answer: The person responsible for the deduction of tax at
source under this provision is required to file a statement of tax deducted at source in Form
26Q quarterly.

[As amended by Finance (No. 2) Act, 20 24]