SECTION 194N : TDS on Cash Withdrawal

Introduction

Section 194N of the Income Tax Act in India provides for the deduction of TDS (tax deducted at source) on payments made to a resident individual or a Hindu Undivided Family (HUF) for any financial year, if the aggregate amount of such payments exceeds Rs. 50,000 during the financial year.

The rate of TDS under Section 194N is 10% without any exemption or deduction. The TDS is required to be deducted at the time of payment or credit to the account of the recipient, whichever is earlier.

The aggregate amount of payments for which TDS is required to be deducted under Section 194N includes all types of payments made during the financial year, except for certain specified exemptions as mentioned in Section 194N(3). These exemptions include:

Section 194n – Income tax Objective

Section 194N of the Income Tax Act in India is a provision that aims to prevent tax evasion by requiring the deduction of TDS (tax deducted at source) on certain types of payments made to resident individuals or Hindu Undivided Families (HUFs).

The objective of this section is to ensure that tax is deducted at the time of payment or credit to the account of the recipient, thereby preventing the recipient from evading taxes by not reporting the income in their tax returns. This section also helps to widen the tax base by bringing more income under the tax net.

The section applies to payments made during a financial year, and if the aggregate amount of such payments exceeds Rs. 50,000 during the financial year, then TDS is required to be deducted at a rate of 10% without any exemption or deduction. The TDS is required to be deducted at the time of payment or credit to the account of the recipient, whichever is earlier.

The section also specifies certain exemptions from TDS under Section 194N(3), which includes salaries paid to an employee under Section 192, interest income received by a bank or a financial institution under Section 193, rent income received by a landlord under Section 194A, dividend income received by a company under Section 194D, interest income received by a banking company, a co-operative society engaged in carrying on banking business, and certain other institutions under Section 194D, payment made to a contractor for carrying out construction work under Section 194J, payment made to a supplier for supply of goods under Section 194I, and payment made to a person providing professional services under Section 194C or Section 194J.

Deduction of TDS under Section 194n

Under Section 194N of the Income Tax Act in India, TDS (tax deducted at source) is required to be deducted by the payer from certain types of payments made to resident individuals or Hindu Undivided Families (HUFs) during a financial year. The following steps outline the process of deducting TDS under Section 194N:

1. Determine whether TDS is applicable: TDS is applicable if the aggregate amount of payments made to a resident individual or HUF during a financial year exceeds Rs. 50,000. If the aggregate amount of payments is less than Rs. 50,000, then TDS is not required to be deducted.

2. Calculate the amount of TDS: The rate of TDS under Section 194N is 10%. No exemption or deduction is allowed while calculating the amount of TDS.

3. Deduct TDS at the time of payment: TDS is required to be deducted at the time of payment or credit to the account of the recipient, whichever is earlier. The payer should issue a TDS certificate (Form 16A) to the recipient within 15 days from the end of the month in which TDS is deducted.

4. Deposit TDS with the government: The payer should deposit the TDS amount with the government within seven days from the end of the month in which TDS is deducted. Late payment attracts interest and penalty under Section 234E and Section 234F, respectively.

5. File quarterly and annual returns: The payer should file quarterly and annual returns with the Income Tax Department within due dates specified under Section 200 and Section 239B, respectively. Failure to file returns attracts penalty under Section 271A and Section 271B, respectively.

What is the aim of TDS in Section 194n?

The aim of TDS (tax deducted at source) under Section 194N of the Income Tax Act in India is to prevent tax evasion by ensuring that tax is deducted at the time of payment or credit to the account of the recipient. This provision applies to certain types of payments made to resident individuals or Hindu Undivided Families (HUFs) during a financial year, and if the aggregate amount of such payments exceeds Rs. 50,000 during the financial year, then TDS is required to be deducted at a rate of 10% without any exemption or deduction.

The objective of TDS under Section 194N is to ensure that tax is paid by the recipient at the time of receipt of income, thereby preventing the recipient from evading taxes by not reporting the income in their tax returns. This section also helps to widen the tax base by bringing more income under the tax net. By deducting TDS at source, it also helps to ensure that sufficient funds are available with the government for meeting its expenditure requirements.

TDS Rate under Section 194n

The rate of TDS (tax deducted at source) under Section 194N of the Income Tax Act in India is 10%. This rate is applicable to certain types of payments made to resident individuals or Hindu Undivided Families (HUFs) during a financial year. If the aggregate amount of such payments exceeds Rs. 50,000 during the financial year, then TDS is required to be deducted at this rate without any exemption or deduction.

The rate of 10% has been fixed by the Income Tax Department to ensure that sufficient tax is deducted at source to prevent tax evasion and ensure timely payment of taxes. Since no exemption or deduction is allowed while calculating the amount of TDS under Section 194N, it helps to prevent underreporting of income by the recipient.

Latest Changes in Section 194n

As of the latest update in the Income Tax Act, 2021, there have been no significant changes made to Section 194N. The provision continues to apply to certain types of payments made to resident individuals or Hindu Undivided Families (HUFs) during a financial year, and if the aggregate amount of such payments exceeds Rs. 50,000 during the financial year, then TDS is required to be deducted at a rate of 10% without any exemption or deduction.

However, the Finance Act, 2021 introduced a new section called Section 194Q, which applies to payments made to residents for transferring immovable property located in India. Under this section, TDS is required to be deducted at a rate of 1% without any exemption or deduction if the aggregate amount of such payments exceeds Rs. 50,000 during the financial year. This new section is effective from July 1, 2021.