Section 194N was added to the Income Tax Act along with the Finance Act 2019 and was initially applicable to cash withdrawals above Rs 1 crore. The aim was to reduce cash transactions and monitor large cash payments.
However, in the Finance Act 2020, this limit has been reduced to Rs 20 lakh for taxpayers who have not filed income tax returns for the last three financial years. From the financial year 2020-21 onwards, it is necessary to file the declaration in every financial year along with a copy of the returns for the last three years. It is necessary to submit the same document in the bank from April 1, 2021. If you haven’t done it yet, do it immediately.
Scope of section 194N
Section 194N will be applicable in case of cash withdrawal from a bank, post office by an individual, Hindu Undivided Family (HUF), company, partnership firm, LLP, local authority, trust.
Credit to TDS
TDS deducted by the bank will be available as credit against tax paid on filing of Income Tax Return for the applicable financial year. If the tax paid is short, then the excess tax paid can be claimed as refund. However, information regarding cash transactions can be sought from the taxpayer by the Income Tax Department.
If the recipient does not have PAN
If the PAN of the person receiving the amount is not available with the bank, the TDS rate will increase to 20 per cent along with applicable cess and surcharge.
multiple accounts or one account
These provisions will be applicable for the entire amount withdrawn from all the accounts during the year on the basis of PAN of the recipient.
Who has got exemption from the provision
TDS on Cash Withdrawal from State and Central Government, Banking Company, White Label ATM Operator of the Banking Company, Business Correspondent of the Banking Company, such other persons for whom notification has been given by the Central Government, Commission Agents covered under APMC Act OR Traders and Reserve Bank licensed money changers and their franchisee agents will get the exemption.
Process to submit ITR and declaration form
Every bank has made an offline or online arrangement for submission of the declaration form along with the income tax return. The taxpayer has to approach the branch of his bank to complete the necessary formalities. Taxpayers should take proof of receipt of their records from the bank.
(Author is CA)
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