TDS on Cash Withdrawal: Section 194N
The Income Tax Department has announced a significant update regarding TDS on cash withdrawals. Effective December 1, foreign representations such as diplomatic missions, United Nations agencies, international organizations, consulates, and honorary consuls approved by the Ministry of External Affairs will no longer be subject to TDS on cash withdrawals. This change aligns with the exemptions under the Diplomatic Relations (Vienna Convention) Act 1972 and the United Nations (Privileges and Immunities) Act 1947.
Understanding Section 194N of the Income Tax Act
As per Section 194N of the Income Tax Act, TDS is levied when cash withdrawals exceed specified thresholds:
- ₹20 lakh per fiscal year if the individual has not filed income tax returns (ITRs) for the previous three assessment years (AYs).
- ₹1 crore per fiscal year if ITRs for at least one of the previous three AYs have been filed.
This TDS is applicable to cash withdrawals from accounts maintained with banks (public, private, and cooperative) and post offices.
Key Details of the Notification
The Central Government, in consultation with the Reserve Bank of India (RBI), has clarified that Section 194N does not apply to cash withdrawals by:
- Foreign representations, including diplomatic missions
- United Nations agencies
- International organizations
- Consulates and offices of honorary consuls
These entities enjoy tax exemptions under international and Indian laws, ensuring compliance with diplomatic and organizational privileges.
Entities Excluded from TDS Provisions
Apart from foreign representations, Section 194N already excludes the following entities:
- Central and state government bodies
- Private and public sector banks
- Cooperative banks
- Post offices
- Business correspondents of banks
- White-label ATM operators
- Specified commission agents or traders under the Agriculture Produce Market Committee (APMC) for payments to farmers
- Authorized dealers, their franchisees, and Full-Fledged Money Changers (FFMCs) licensed by RBI
Applicability and Rates of TDS Under Section 194N
Section 194N came into effect on September 1, 2019, and applies to fiscal years starting from FY 2019-2020. The rates are as follows:
- 2% TDS on cash withdrawals exceeding ₹1 crore for individuals who have filed ITRs for at least one of the preceding three AYs.
- 2% TDS on withdrawals exceeding ₹20 lakh and 5% TDS on withdrawals exceeding ₹1 crore for individuals who have not filed ITRs for any of the preceding three AYs.
Frequently Asked Questions (FAQs)
1. What is TDS on Cash Withdrawal as per Section 194N?
Section 194N mandates TDS on cash withdrawals exceeding:
- ₹20 lakh in a fiscal year if no ITRs have been filed for the last three AYs.
- ₹1 crore in a fiscal year if ITRs for at least one of the last three AYs have been filed.
2. Who Deducts TDS Under Section 194N?
Banks (public, private, and cooperative) and post offices deduct TDS on qualifying cash withdrawals.
3. Who is Exempt from TDS on Cash Withdrawals?
Exemptions apply to:
- Central and state governments
- Banks (public, private, cooperative)
- Post offices
- Business correspondents
- White-label ATM operators
- APMC commission agents or traders making payments to farmers
- RBI-licensed dealers, FFMCs, and their franchisees
- Foreign representations as notified by the government
4. When Did Section 194N Become Effective?
This provision has been in effect since September 1, 2019, and applies to fiscal years from 2019-2020 onwards.
5. What Are the TDS Rates Under Section 194N?
- 2% TDS on withdrawals exceeding ₹1 crore for those who filed ITRs.
- 2% TDS on withdrawals above ₹20 lakh and 5% TDS on withdrawals over ₹1 crore for those who did not file ITRs.
This update ensures that diplomatic entities and international organizations can continue their operations without the burden of TDS, reflecting the government’s commitment to upholding international agreements and operational efficiency for foreign representations.
Related Notification No. 123/2024
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