In order to discourage cash transactions and move towards cash-less economy, a new Section 194N (Introduced via Union Budget 2019) has been inserted under Income-tax Act with effect from September 1, 2019 to provide for deduction of tax on cash withdrawals made by any person from his bank or post-office account.

Every banking company, cooperative bank, post office who is responsible for paying  any amount in cash the  aggregate of which is exceeding Rs. 1 crore during the previous year from one or more accounts maintained by the recipient with it shall at the time of payment of such sum deduct an amount equal to 2% of sum as TDS.

Provided that in case of recipient who has not filed the returns of income for all of the three Assessment  years relevant to the three previous years,  for which the time limit for filing return of income under subsection 1 of Section 139 has expired, immediately preceding the previous year in which  payment of such amount is made to him, The provision of this section shall apply with the modification that:

1. TDS shall be deducted at 2% of the amount exceeding Rs. 20 lacs during the previous year; and

2. (a) an amount equal to 2% of the TDS where the amount or  aggregate of amounts, being paid in cash exceeds Rs. 20 Lacs  during the previous year but does not exceed Rs. 1 crore; or

(b) an amount equal to 5% of the sum  where the aggregate payment in cash exceeds Rs.  1 crore during the previous year.

Date of applicability:

Old section 194 was applicable up to 30 June 2020 provided that 2% TDS will be deducted on cash withdrawal above 1 crore. The new section 194N into force from 1.07.2020 .

This Section applies to cash withdrawal made by resident as well as non resident.

The provisions under section 194N are not applicable in case payment is made to the following person:

• Government
• Banking company
• Co-operative society engaged in the business of banking
• Any business correspondent authorized by RBI
• Any white label automated teller machine (ATM) operator authorized issued by the RBI
• Any other person which central government may specify by the notification.
• As per recent notification (NN 70/2019) dated 20 September, 2019 – No TDS under section 194N shall be deducted on cash withdrawal made by
  o Commission agents or
  o Trader operating under Agriculture Produce Market Committee (APMC) for the purpose of making payments to the farmers on account of purchase of agriculture produce.