Q.1. What is the section 194N of IT act 1961?
Ans. The Finance (No. 2) Act, 2019 has inserted a new section 194N in the Income-tax Act, 1961 (the ‘Act’), to provide for levy of tax deduction at source (TDS) @2% on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from one or more accounts maintained with it by the recipient.
It will be applicable from 1st Sept, 2019.
Q.2. Whether TDS on cash withdrawal prior to 1st 2019 will be applicable?
Ans. Any cash withdrawal prior to 1st September, 2019 will not be subjected to the TDS under section 194N of the Act. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 1st April, 2019.
Q.3. Whether TDS will be applicable if a account holder requests the bank to issue a bearer draft or bankers cheque (Pay order).
Ans. The TDS is not applicable in the case of an account holder requesting the bank to issue a bearer draft or bankers cheques which are cashable for cash at a different location or time. Such sum is not liable for TDS since the bank is not paying any sum in cash.
Q.4.On what amount TDS will be deducted? Please explain.
Ans.Lets understand it with an example- the aggregate payments made till the last payment was Rs 99, 80,000/- and the present payment is Rs 100,000. The aggregate payments so made crosses and reaches Rs 1, 00, 80,000/-. Now the matter for consideration whether the TDS is on Rs 80,000 or on Rs 100,000. From the language of the provision, it is applicable at 2% of Rs 80,000 = 1600 and the net payment to be made by a banker is Rs 100,000 minus Rs 1600 = 98400.
Q.5.Whether the limit is applicable on each account separately or on Consolidated Accounts.
Ans. That the limit is applicable for each such an account maintained by it. For instance if ABC Ltd has cash credit account, current account, Overdraft account, the limit of Rs 1 crore is applicable for each such account.
Q.6.TDS is a deductible from certain payments being in the nature of income of the recipients and it takes the character of advance collection of taxes. But in that case cash is not in the nature of income then how it will be reported in 26AS.
Ans. If the provisions of 194N are implemented from the viewpoint of TDS, posting to 26AS might pose a challenge since presently all the TDS provisions and the corresponding TDS Deductions get posted to 26AS as income and the TDS corresponding to that. Cash withdrawal cannot itself become an income of an assessee.
Q.7.Whether recipient need to be account holder always?
Ans. If we read the wordings it states that “account maintained by the recipient “.Therefore the recipient is different from the account holder, and the payment is by bearer cheques the TDS is not deductible.
Q.8.Whether provision of section 194N applicable on authorized money changers?
Ans. It is not clear whether authorized money changers, who happen to deal in hard currencies are also subjected to TDS, the provisions should not be applicable to money changers since no account of the customer is maintained by them and nevertheless they do not carry on banking operations and they deal with different currencies and only exchange facilities provided.