Section 194-N:

The ambitious mission of government of India to drive India towards a cashless economy was boosted with the announcement of demonetization on November 8, 2016. Since then, the Government of India has taken numerous initiatives to promote cashless transactions. To promote digital payments further, and discourage the practice of making business payments in cash, a new section 194N has been inserted to levy TDS on cash withdrawal above a certain limit.

Need For Such Measure
This section has been inserted to discourage large amount of cash withdrawals from bank accounts and to curb the generation of black money in India. The detailed analysis of the provision has been given in the Article below.

Bare Text
Every person, being-
(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); 
(ii) a co-operative society engaged in carrying on the business of banking; or 
(iii) a post office

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum*, deduct an amount equal to two per cent. of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to,-
(i) the Government;

(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

(iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.’.

TDS at the rate of 2% would be deducted by banking company, cooperative societies engaged in the business of banking, or post office, “if the cumulative withdrawals from all accounts with one bank, exceeds INR 1 crore”.

Analysis
1. This section will take effect from the 1st day of September 2019. 

2. This section will be applicable to any person (referred as Recipient) who withdraws a sum of, or an aggregate of sums, that is in excess of Rs. 1 Crore from all of his accounts maintained under one bank or such other institution as given above, in cash, in a particular previous year. It should be further noted that the account from which the cash is withdrawal must be in the name of recipient only. (i.e. the account holder and the recipient must be same).

Example: 
a) Mr. A has an account with State bank of India. He has already withdrawn Rs. 99,50,000/- during the year. He further withdraws Rs. 2,00,000/- during march then TDS will only be deducted on Rs. 1,50,000/- which is in excess of Rs. 1 Crore. Net payment to recipient will be Rs. 1,97,000/-.

b) Mr. A has an account with State bank of India. He has already withdrawn Rs. 1,00,00,000/- during the year. He issued a bearer cheque in the name of Mr. B of Rs. 5,00,000/- payable in cash. Here no TDS shall be deducted even if the amount of withdrawal exceeds Rs. 1 Crore as the account holder and the recipient are not the same.

3. Person’s liable to deduct tax:
• Banking Company (To which the Banking Regulation Act of 1949 must be applicable, or any bank/banking institution referred to in Section 51 of the same Act.)
• Co-operative Society; that engages in carrying out the business of banking.
• Post Office

4. The limit of Rs. 1 Crore is applicable for all type of accounts maintained by the bank or similar entities as mentioned above. For instance, if a recipient has a Current Account as well as Overdraft Account with the same bank, the limit of Rs. 1 Crore will be applicable for aggregate withdrawals from both the accounts. Furthermore, if the recipient has branches throughout the country and maintains separate accounts for each branch, the limit is applicable in aggregate for all such different branches of same bank.

Therefore, there exists a loophole that a recipient can maintain accounts in different banks and withdraw in excess of Rs. 1 Crore from different bank accounts and avoid applicability of the said provision. 

5. This section will not be applicable if recipient are following person’s:
a) the Government;
b) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

c) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

d) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorization issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

e) Such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India

Implementation Difficulties
The ground level difficulties in implementation of this section will be as follows:
• The specified class of deductor’s as referred are required to incorporate a robust system of maintaining a log of each and every cash withdrawal by recipient from his different accounts, to ensure that when his further withdrawals exceed Rs. 1 Crore, TDS is automatically deducted from such cash payment.

• Another problem which will be faced by the Bank’s only and will be hard to tackle is that, in case of withdrawals from Automated Teller Machines (ATM’s) in excess of aggregate limit of Rs. 1 crore, the amount of TDS need to be deducted, on such cash withdrawal above the specified limit has to be accurately calculated by the ATM machine itself and only the net proceeds should be handed over to the recipient.

Benefits
# Huge cash withdrawals and cash payments will be discouraged with the insertion of this section.

# Digital payments will be promoted among the recipients to avoid TDS liability.

# Tax departments will be able to trace assesses with huge cash withdrawals during any previous year and can accordingly further investigate into the matter regarding disbursement of such huge cash.

# Violations of various limited cash payment laws under various Acts will get push with this new section.

# Hawala transactions will also get restrain as huge cash withdrawals from banks and other institutions will lead the recipient to face TDS liability as well as tax authorities and other concerned departments will be able to traces such recipients easily.

Hindrances
The only hindrance that will be faced by the department in implementation and execution of this provision is proper automated system that needs to be installed by the banks and other institutions. Specially in case of ATM machines the execution of this provision will be a bit challenging for the department as well as banks.

Furthermore with proper automated system this provision will lead to promotion of digital payments and avoid huge unauthorized cash transactions in the economy.

End-Notes:
Finance Bill (No. 2), 2019 dated 5th July 2019
*Further amendment as passed by Lok Sabha on 18th July 2019

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