Section 194N of Income Tax Act 1961

Income Tax Act 1961

What is the Basic understanding of Sec 194N?

We should note that Section 194N is nothing but a TDS –Tax Deducted at source and the same is to be deducted on ‘Aggregate Withdrawal’ in a financial year.

In simple terms, this section speaks about deduction of TDS under certain circumstances i.e., if the aggregate withdrawal of a person during a financial year exceeds Rs. 1 crore then the person (recipient) is liable to a deduction of TDS u/sec 194N which is @ 2% on the amount in excess of Rs. 1 crore.

The aforesaid section 194N was introduced by the Finance Minister in Union Budget 2019 thereby promoting cashless transactions and leading to a digitalized India.

Explain the Amendment with effect from 01st July 2020?

Now we should develop a basic understanding that 194N is the practicality which everyone is going to face especially from the financial institution like banks wherein they are going to deduct 2% from your bank balance as soon as you cross the withdrawal limits.

In terms of amendments or any up gradation, Section 194N has attracted amendment in the Finance Act 2020 stating that any person who has not filed Income tax returns of last three financial years immediately preceding the year in which he has done withdrawals then the threshold limit of such specified person reduces from Rs. 1 crore to Rs. 20 lakhs and the rate of TDS applicable would be 2% on the amount exceeding Rs. 20 lakhs and if the total withdrawals exceeds Rs. 1 crore, the TDS would be deducted @ 5% on the amount exceeding Rs. 1 crore.

In other words, if the total withdrawals > Rs. 20 lakhs and< Rs. 1 crore, then TDS @ 2% is applicable.

(OR)

if the total withdrawals > Rs. 1 crore, then TDS @ 5% is applicable.

What are the Important Points we learn from this blog?

1) An aggregate / total withdrawal includes all sums being withdrawn from one or more bank accounts and irrespective of account/s being savings or current account. It also includes the sum received from a banking company or a co-operative society engaged in banking business or a post office.

2) The term ‘any person’ includes an individual, a HUF, a Company, a Partnership firm or an LLP, a local authority, and an AOP or BOI.

3) The latest amendment is effective on the all transactions post 01st July, 2020 and is applicable to persons who have not filed their Income tax returns for the last three years.

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