Overview of section 194 N of the Income Tax Act, 1961

Section 194N : Payment of certain amounts in cash

This section was has been inserted wef Finance Act, 2019 wherein the section inserted that every person being a banking company to which Banking Regulations Act, 1949 applies or a co-operative society which is engaged in banking business or a post office who is responsible for paying any sum in cash in excess of INR 1 Crore during a year to any person from one or more accounts maintained by him. These banks or corporative societies or post office are liable to deduct an amount equal to two percent of the sum paid in excess of INR 1 crore.  

The first proviso to the section stated that section 194N shall not be applicable in case the payments are made to any of the following namely:-

1. The government;
2. Any banking company or co-operative society which is engaged in the business of banking or post office;
3. Any business correspondent of a banking company or co-operative society engaged in the business of banking in accordance with the guidelines issued by the Reserve Bank of India under RBI Act, 1934;
4. 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 RBI under the Payment & Settlement Systems Act, 2007;
5. Such other person or class of persons as the Central Government may with the Central Government may by notification in the official gazette, specify in consultation with the RBI.

This section was substituted by a newly inserted section 194N. This newly substituted section is applicable w.e.f 1^st July 2020. The newly substituted section states that every person being a banking company to which Banking regulations act applies or a co-operative society engaged in business of banking or a post office who is responsible for paying any sum in excess of INR 1 Crore from either one account or more than one account shall deduct an amount equal to two percent of such income tax;

Provided that the following provisions shall be modified in case the recipient has not filed return of income for all of the relevant three assessment years relevant to the three previous years for which time limit for filing of return of income has expired immediately preceding the previous year in which payment of such sum is made.

The limits in such modified case shall be:-

• TDS shall be deducted in case the amount or aggregate of amounts exceed twenty lakhs;
• The deduction shall be equivalent to 2% where the sum paid exceeds twenty lakhs but does not exceed one crores and 5% where the sum paid exceeds one crores.

Provided the central government may specify in consultation with the Reserve Bank of India by notification in the official gazette, the recipient in whose case these modified provisions shall not apply or apply at reduced rates.

Provided further that the provisions of this substituted section shall not apply in case the payments are made to any of the following:-

1. The government;
2. Any banking company or co-operative society which is engaged in the business of banking or post office;
3. Any business correspondent of a banking company or co-operative society engaged in the business of banking in accordance with the guidelines issued by the Reserve Bank of India under RBI Act, 1934;
4. 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 RBI under the Payment & Settlement Systems Act, 2007;