In order the discourage the
cash transactions and encourage the digital economy, the Hon. Finance Minister
Smt. Nirmala Sitharaman ji had introduced a new section 194N in the Income Tax
Act, 1961 through the Finance Bill, 2019 presented at the Union Budget, 2019 on
5th July, 2019. Let us have a brief overview on the section.
The section reads as
follows –
“Payments of certain
amounts in cash.
194N. Every person,
being, —
(i)
a banking company to which
the Banking Regulation Act, 1949 (10 of 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 one or more accounts 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 (2 of
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 (51 of 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.
Let us discuss this section
here.
Ø
Applicable to whom?
The section is
applicable to the following persons (let us term it as payer) –
i.
A Bank – either public sector, private sector, cooperative bank or
even a branch of a foreign bank in India.
ii.
A cooperative society engaged in banking business – Any cooperative
society not being a bank but engaged in banking business.
iii.
A post office.
Ø
Who is recipient?
Recipient is any
person to whom the payer pays an amount from one or more accounts maintained
with it by such person.
Ø
Applicable when?
The section is
applicable when the payer is responsible to pay the recipient an amount, or
aggregate of amounts during a previous year, in excess of one crore rupees in
cash. So, when the payer pays an amount of more than one crore rupees in cash,
either a single amount of aggregate of all amounts during the previous year (or
for simple understanding the financial year), the provisions of this section
shall be applicable.
Ø
Responsibility of Payer
When the section
becomes applicable, the payer shall be responsible to deduct an amount of 2%
from the amount paid to the recipient in excess of one crore rupees. When during
the entire year the amount paid in cash to the recipient by the payer exceeds one
crore rupees, on each such amount paid in excess of one crore rupees, the payer
shall deduct a sum of 2% from such payment. Such amount shall be deposited to
the credit of central government and shall be reported in TDS return whereby
the recipient shall get the credit of the tax so deducted.
This section is
unlike other TDS provisions where, on applicability, tax is deducted on entire
amount of payment. Under this section, tax shall not be deducted on one crore
rupees. It shall be deducted on amount in excess of one crore rupees. For
example, if a person withdraws one crore and fifty lakh rupees from a bank, tax
shall be deducted on fifty lakh rupees and not on entire amount withdrawn.
Ø
Effective date of
applicability
As mentioned in the
Finance Act, 2019 this section shall be effective w.e.f. 1st
September, 2019. Any amount paid by the payer to the recipient on or after 1st
September, 2019 shall be eligible for TDS if it satisfies all other conditions
as mentioned above.
Ø
Exempted recipients
Following recipients
are exempted from the provisions of this section. When the payer pays an amount
to following recipients, it is not required to deduct any tax on cash payments.
i.
The Government
ii.
Any banking company or cooperative society engaged in banking
business or post office
iii.
Any banking correspondent
iv.
Any white label ATM operator of a banking company or cooperative
bank engaged in banking business
v.
Such other person or class of persons as may be notified by the
Central Government by way of notification
Let us now discuss some
issues related to the applicability of the section
Ø
Applicability for the financial
year 2019-2020
The section becomes
effective from 1st September, 2019, i.e. in mid of the year. There
were lot of confusions about the applicability of the section for the F.Y.
2019-2020. However, the Income Tax Department has issued a clarification dated
30th August, 2019 whereby it has clarified the applicability of the
provisions.
Accordingly, the tax
deduction shall be applicable on cash payments post 1st September, 2019
but the limit of one crore rupees shall be counted with effect from 1st
April, 2019. Following table shall clarify the applicability of this section
under various circumstances.
Amount withdrawn
till 31st August, 2019
|
Amount withdrawn
after 31st August, 2019
|
Total Amount
Withdrawn during FY 2019-2020
|
Date of Crossing
of One Crore Rupees
|
Date of
Applicability of TDS
|
Amount on which
tax is deducted
|
50,00,000
|
70,00,000
|
1,20,00,000
|
15th Oct.
|
15th
Oct.
|
20,00,000
|
1,50,00,000
|
1,50,00,000
|
3,00,00,000
|
18th
Jul.
|
1st
Sep.
|
1,50,00,000
|
80,00,000
|
15,00,000
|
95,00,000
|
-
|
N. A.
|
Nil
|
2,50,00,000
|
1,00,000
|
2,51,00,000
|
25th
Jun.
|
1st
Sep.
|
1,00,000
|
1,00,000
|
5,00,00,000
|
5,01,00,000
|
12th Nov.
|
12th
Nov.
|
4,01,00,000
|
The above illustrations
are given for understanding purposes.
Ø
Applicability – per bank or
per person?
There is a concern
regarding applicability of section 194N that whether it is applicable per bank or
per person across all banks. The reading of the section clearly poses
responsibility on a banking company. The limit of one crore rupees is
applicable to each bank irrespective of accounts maintained with it. So, if a
person withdraws ninety lakh rupees each from 3 different banks during a
financial year, the provisions of this section shall not be applicable as the
limit of one crore rupees not been completed in any of the banks.
Ø
What if bearer cheque is
issued to any other person?
The section speaks
of an amount paid to ‘a recipient’ during the previous year. Recipient according
to the section is a person who maintains one or more accounts with the banking
company, cooperative society or the post office. In case a person issues a bearer
cheque to another person, the person to whom the bearer cheque is issued doesn’t
come in the meaning of recipient as per the section. So, the doubt remains
about applicability of section for bearer cheque issued to third person.
Other provisions of
Act shall be applicable such as 40A(3), 269T, etc. However, in case any bearer
cheque is paid to an agriculturist of primary producer who are exceptions to
section 40A(3) vide rule 6DD, whether such amount shall be eligible for TDS or
not. Lets hope for a clarification from the Income Tax Department.
In my opinion, tax
shall be deducted even if a bearer cheque is issued to a third person.
Ø
Credit of Tax Deducted
under this section
There is a fear amongst
assessees regarding the treatment of the tax deducted by the banks on applicability
of this section. There is no need to worry as this amount shall be eligible as
tax credit while filing of return of income of person whose tax is so deducted.
This is in fact a good move
by the Central Government to reduce the cash economy and promote the digital economy.
However, even if the Government is promoting the digital economy and has
introduced this section to discourage the cash withdrawals and accordingly cash
payments, this section is going to adversely affect few sectors of the business
community.
Especially, the agricultural
commodity market where payments are allowed to be made in cash to farmers and
cash payment is prominent mode of payments. The assessees in the Agriculture
Produce Market Committee who have thin margins ranging from 1-2% shall now have
2% of their payments blocked as TDS.
Also, the businesses which
are predominantly dependent on seasonal or temporary daily labour that require
daily payments of labour to be met in cash, shall also face a hardship as
considerable sum of money shall be blocked by the TDS credit.
Hopefully, the Government takes
concern of this situation and comes up with some exemption or solution for the hardship
faced by this sector.
Disclaimer:
The content of this
hand-book is based on the interpretation of the author and is subject to
difference of opinion with others. Care has been taken with respect to
correctness the legal provisions mentioned herein. However, any errors or
omissions are unintentional. The contents of the handbook should not be taken
as opinion of the author for entering into any transaction.
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