For the past few years, the Indian government has been constantly making efforts towards reducing cash transactions and promoting digital transactions in pursuit of a ‘Digital India’. Towards this goal, Finance Minister announced a tax on high-value cash withdrawals under Section 194N. 

Section 194N
Section 194N was introduced in the Finance Bill, 2019. Under this section, a cash withdrawal over ₹1 crore within a year will incur a TDS of 2%. This tax will be levied only on the amount above ₹1 crore. For example, if Ashish has withdrawn ₹1 crore and ₹50 lakhs in the entire year, he will be taxed at 2% only on ₹50 lakhs. 

Who can deduct TDS on cash withdrawal above ₹1 crore?

  • Any private sector or public sector bank
  • Any co-operative bank
  • Any post office

Who is liable to pay TDS on cash withdrawal more than ₹1 crore?
The following entities with one or more accounts with the same bank/post office are liable to pay this tax.

  • Individual
  • Hindu Undivided Family
  • Company
  • LLP or partnership firm
  • Local authority
  • Body of Individuals or Association of Persons 

What if one has withdrawn a total amount above ₹1 crore from different accounts?
If one entity has made a cash withdrawal above ₹1 crore from different accounts with the same bank, the total amount is considered for levying a tax. However, if one has withdrawn ₹1 crore from four different accounts with four different banks, they will not be liable to pay any TDS. 

When did this tax come into effect?
TDS on cash withdrawal more than ₹1 crore came into effect on September 1, 2019. 

Does it affect transactions from April 1, 2019 to August 31, 2019?
Since the tax applies to the total amount withdrawn in the entire financial year, transactions made in the period of 1st April 2019 to 31st August 2019 will be added while computing the annual tax. 

Can one claim credit for TDS on cash withdrawal more than ₹1 crore?
Yes, the account holder of the account from which cash withdrawal above ₹1 crore has been made, can claim credit of the TDS deduction. They can then set it off against their total tax liability for the year. 

Can the deductee carry forward the tax credit to the next financial year?
No, the tax credit cannot be carried forward to the next financial year. 

Can the credit be transferred to another person?
Credit on this particular type of TDS cannot be transferred to another person and can be availed by the deductee only, i.e. the holder of the account from which an amount more than ₹ 1 crore has been withdrawn.