Section 194N of the Income Tax Act 1961:

Introduction: Section 194N of the Income Tax Act, 1961, was introduced through the Finance Act, 2019. It outlines provisions for Tax Deduction at Source (TDS) on cash withdrawals from banks, post offices, and co-operative banks. The purpose is to track high-value cash transactions and discourage the use of cash in the economy.

Key Provisions:

1. Applicability: The section is applicable from 1st July 2020.

2. TDS Rate: If an individual or Hindu Undivided Family (HUF) withdraws cash exceeding Rs. 1 crore during a financial year, the bank is required to deduct TDS at the rate of 2% on the amount exceeding the threshold.

3. Cumulative Withdrawals: The limit of Rs. 1 crore is cumulative for all accounts held by the individual or HUF in the same bank, post office, or co-operative bank. TDS is calculated on the amount exceeding Rs. 1 crore.

4. Entities Exempted: The provision does not apply to certain entities, including the government, banks under the Banking Regulation Act, 1949, post offices, co-operative societies engaged in banking, and business correspondents of banking companies.

Changes Before the Budget of 2023: As of my last knowledge update, the Finance Act, 2021, introduced changes to Section 194N. These changes included:

• Reduced Threshold: The threshold for TDS on cash withdrawals was reduced from Rs. 1 crore to Rs. 20 lakh for individuals and HUFs who haven’t filed their income tax returns for the previous three assessment years and whose accounts are not linked with Aadhaar. This provision is effective from 1st July 2021.

• Introduction of Section 206AB: A new provision, Section 206AB, was introduced. It applies higher TDS rates for certain non-filers of income tax returns. If a person has not filed returns for the previous two years and the aggregate TDS and TCS exceed Rs. 50,000 in each of these two years, the TDS rate will be twice the applicable rate or 5%, whichever is higher.

Budget 2023 Updates – Section 194N: In the Budget 2023, there were updates related to Section 194N:

• Increased TDS Threshold for Co-operative Societies: The threshold for TDS on cash withdrawals by co-operative societies was increased from Rs. 1 crore to Rs. 3 crore. This change is effective from April 1st, 2023.

Other Budget 2023 TDS Updates:

• Introduction of TDS on income from online gaming (Section 194BA).
• Amendment in TDS rates on PF withdrawal for employees without PAN (Section 192A).
• No exemption from TDS on interest from listed debentures (Section 193).

It’s important to stay updated with the latest amendments and consult tax professionals for specific advice on tax obligations.