- Suyash Tripathi
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- 25 Feb 2023
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Proposed changes in Budget 2023 in Section 194N of Income Tax Act, 1961
Cash dealings have always been an eye on the regulatory authorities. With many Regulatory changes coming up frequently, there have been efforts made by the Government to trace the cash transactions and also to reduce the cash transactions so that India can be an active part of Digital Era. One such way to trace the Cash transactions is by introducing the applicability of Tax Deduction at Source on Cash withdrawals. Section 194N under Income Tax Act have been introduced detailing the provisions of TDS on Cash withdrawals.
Banking company, Co-operative bank and a Post office paying more than 1 crore from one or more accounts maintained by the recipient shall deduct tax at the rate of 2% on the amount exceeding rupees 1 crore. Further changes in Budget 2023 have introduced changes for co-operative bank or societies, the threshold limit for annual cash withdrawals has been increased to Rupees 3 crores from Rupees 1 crore.
Exceptions to TDS under Section 194N:
1) No section 194N TDS is applicable to Cash replenishment Agencies.
2) Also, no TDS on cash withdrawn by commission agents operating under Agricultural Produce Marketing Committee.
3) Authorised money exchange dealers who withdraw cash for purchase of Foreign currency not covered u/s 194N.
If the returns are not Filed by a person who is withdrawing Cash then,
1) The limit shall be reduced to Rupees 20 lakhs for the recipient who has not filed IT returns for all the last 3 previous years.
2) The rate of TDS shall be 2% for above Rupees 20 lakhs and upto 1 crore and 5% on amounts above 1 Crore.
Frequently Asked question on TDS under section 194N
Following Frequently Asked questions have been framed to ease out the explanation:-
1) To whom TDS under Section 194N is applicable?
Ans: Section 194N is applicable to Banking company, Co-operative bank and a post office.
2) What is the Threshold limit for Banking company or Post Office to deduct tax under section 194N?
Ans: Banking company or Post office paying more than 1 crore rupees is required to deduct TDS from one or more accounts maintained by the recipient.
3) What is the Threshold limit for Co-operative bank or societies to deduct TDS under section 194N?
Ans: Co-operative bank paying more than 3 crore rupees is required to deduct TDS from one or more accounts maintained by the recipient. Earlier the limit was 1 crore rupees.
4) What is the rate of TDS to be deducted by Banking company and Post office under section 194N?
Ans: The TDS should be deducted at the rate of 2% above rupees 1 crore in case of Banking company and Post office.
5) What is the rate of TDS to be deducted by Co-operative bank or societies under section 194N?
Ans: The TDS should be deducted at the rate of 2% above rupees 3 crore in case of Co-operative bank or societies.
6) Is it mandatory to file the Income Tax returns to claim the TDS deduction under section 194N?
Ans: Yes, it is mandatory to file the Income Tax returns to claim the TDS deduction.
7) Impact on TDS under section 194N What if the Income Tax returns has not been Filed?
Ans: If the Income Tax return has not been filed the limit shall be reduced to 20 lakh rupees from rupees 1 crore in case of Banking company and post office whereas from 3 crore rupees in case of Co-operative bank or Societies.
8) What is the rate of TDS under section 194N in case Income Tax returns are not filed?
Ans: The rate of TDS in case Income Tax returns are not filed is 2% for above Rupees 20 lakhs and upto rupees 1 crore and 5% on amounts above 1 crore.
Tags: Budget, Budget 2023, FAQs, Section 194N, TDS
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Name: Suyash Tripathi
Qualification: CA in Practice
Company: Suyash Tripathi & Co. Chartered Accountants
Location: MUMBAI, Maharashtra, India
Member Since: 18 May 2020 | Total Posts: 52
Mr. Suyash Tripathi is a member of the Institute of Chartered Accountants of India (ICAI). He has an experience in the fields of Income Tax, International Taxation, Company Law, Banking, Finance etc. He has been conducting Statutory & Tax audit, Internal audit of large & medium scale Limited View Full Profile
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The article you provided discusses amendments proposed in the Budget 2023 related to Section 194N of the Income Tax Act, specifically addressing Tax Deduction at Source (TDS) on cash withdrawals. These proposed changes primarily target the regulation and reduction of cash transactions to facilitate India's transition into the digital era.
Let's break down the key concepts and provisions mentioned in the article:
Section 194N of the Income Tax Act, 1961:
- Purpose: To regulate and trace cash transactions by imposing TDS on cash withdrawals exceeding specified limits.
- Applicability: Applies to Banking companies, Co-operative banks, and Post offices.
- TDS Rates: 2% on cash withdrawals exceeding:
- Rs 1 crore for Banking companies and Post offices.
- Rs 3 crores for Co-operative banks or societies.
Proposed Changes in Budget 2023:
- Threshold Increase: Co-operative banks' threshold for annual cash withdrawals raised from Rs 1 crore to Rs 3 crores.
- Exceptions to TDS: No TDS applicable to:
- Cash replenishment agencies.
- Cash withdrawn by commission agents under Agricultural Produce Marketing Committee.
- Authorized money exchange dealers withdrawing cash for purchasing foreign currency not covered under Section 194N.
Impact on Non-Filers of Income Tax Returns:
- Reduced Limits: If the recipient hasn’t filed IT returns for the last three years:
- For Banking companies and Post offices: TDS limit reduced to Rs 20 lakhs.
- For Co-operative banks or Societies: TDS limit reduced to Rs 20 lakhs.
- TDS Rates: 2% for amounts above Rs 20 lakhs and up to Rs 1 crore, and 5% on amounts above Rs 1 crore.
Frequently Asked Questions (FAQs) on Section 194N TDS:
- Applicability: Applicable to Banking companies, Co-operative banks, and Post offices.
- Threshold Limits for TDS: Rs 1 crore for Banking companies/Post offices and Rs 3 crores for Co-operative banks/Societies.
- TDS Rates for Banking companies/Post offices: 2% on cash withdrawals exceeding Rs 1 crore.
- TDS Rates for Co-operative banks/Societies: 2% on cash withdrawals exceeding Rs 3 crores.
- Requirement of IT Returns: Mandatory to file Income Tax returns to claim TDS deduction.
- Impact of Non-Filing IT Returns: Reduces TDS limits and alters TDS rates.
This information from the Budget 2023's proposed changes in Section 194N of the Income Tax Act demonstrates the government's efforts to monitor and reduce cash transactions while promoting digital financial transactions in India.
