Section 194N TDS on cash withdrawal

Section 194N is appropriate for more than Rs 1 crore cash withdrawals during a financial year. Sec. 194N applies to and secures three classifications of entities. It is mandatory to make clear by the Board which of the Cooperative Societies and Cooperative Banks are mandated to follow or exempted to have transparency regarding the compliances to be followed by the entities.

What is the provision under Section 194N?

Section 194N is appropriate for more than Rs 1 crore cash withdrawals during a financial year. This section will affect the withdrawal of all the aggregates of money or a sum of the full amount payable by a particular payer in a financial year. The section will involve withdrawals made by any taxpayer, including individuals, Hindu Undivided Family (HUF), a company, a partnership firm or an LLP, an Association of Person, a local authority, post-office, and any other bank.

Is Sec. 194N refundable?

Following Rule 37BA of the Income Tax Rules 1962, an individual can claim the TDS (Tax Deducted at Source) credit when the income tax is paid under Sec. 194N, as the return. The said TDS credit can be claimed even if the person has no income for the financial year. Moreover, if a tax penalty is imposed on the individual, the TDS credit can be adjusted to pay off the penalty. Any remaining or excess TDS credit will be reimbursed to such taxpaying individuals. 

What are the exemptions of Sec. 194N?

Under Sec. 194N will not apply to the TDS on cash withdrawals caused by the following persons:

• State or Central Government
• Any public sector bank, private bank, and co-operative bank. Also, the business correspondent and white label ATM of the banks.
• Post office
• Central government-specified franchise agents or vendors operating under the Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of the purchase of agricultural produce
• Approved vendors and its franchise broker and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise dealers.
• Any other person declared by the Government after consulting with the Reserve Bank of India.

How are the Sec. 194N exemptions decided?

For better clarification of Sec. 194N, it can be said that it applies to and securing three classifications of entities, who are– 

• A banking institution under Sec. 51 of the Banking Regulation Act, 1949 ;
• A co-operative organization employed assuming on the banking company; or 
• Post office.

Such individuals are accountable for spending any sum in cash over Rs. 1 crore or Rs 20 lakhs following the Amendment. 

The prerequisites of Section 3 of the Banking Regulation Act 1949 states that it does not apply to – a co-operative land mortgage bank, any primary agriculture credit society and any other co-operative society, excluding the method and the specification under Part V. 

From the above, an inference can be drawn that the Banking Regulation Act does not cover co-operative entities, therefore, are excluded. It is necessary to read the Part V of the Act to understand whether a co-operative society is excluded or included from assertion. The Board must make it clear which of the Cooperative Societies and Cooperative Banks are mandated to follow or exempted to have transparency regarding the compliances to be followed by the entities. Otherwise, there could be confusion and inconsistencies between the banks, driving trouble to the public.