[With effect from
01-07-2020]
1.1. Threshold of Rs. 1 crore of cash withdrawal
To discourage cash transactions and to move towards the
cash-less economy, a new Section 194N has been inserted in the Income-tax Act vide the Finance (No. 2) Act,
2019. This provision requires deduction of tax by a
banking company or a co-op. bank or a post office at the rate of 2% from the
amount withdrawn in cash from any account (saving or current account) if the
aggregate of the amount of withdrawn from one or more account exceeds Rs. 1
crore during the year. The tax shall be deducted on the amount exceeding Rs. 1
crore only.
The Finance Bill, 2020 (as passed by the Lok Sabha) has
expanded the scope of this provision by substituting the existing section with
a new Section 194N. The new section provides different tax rates for two
different class of persons. Further, it also prescribes two threshold limits.
The analysis of the proposed
section is given below.
As per the new section 194N, a banking company or a
co-op. bank or a post office which is responsible for paying any sum,
being the amount or the aggregate of amounts, in cash exceeding Rs. 1 crore during
the previous year, to any person from one or more account, shall at time of
payment of such sum, deduct 2% of such sum as
income-tax.
The language used
in Section 194N gives the following two interpretations:
1) First, whether tax has to be
deducted from the whole amount when it exceeds Rs. 1 crore? and
2) Second, whether tax has to be deducted
from the amount exceeding Rs. 1 crore?
The first view is far-fetched that tax should be
deducted from the whole amount as it may cause many practical difficulties. The
second view is more logical and also matches with the previous provision.
Further, to substantiate that the second view should be acceptable, we should
consider the meaning of the following terms:
a)
Sum
b)
Exceeding
c)
Such Sum
4.1-1. ‘Sum’
The word ‘sum’ is generally used to convey the meaning
of ‘amount’. The Reader's Digest Great Encyclopaedic Dictionary gives one of
the meanings of ‘sum’ as ‘a quantity or amount of or of money’.
4.1-2. ‘Exceeding’
The term ‘exceed’ and the qualifying adjective like
‘exceeding’ are relative terms. It indicates going over or topping or over and
above of what preceded or what is set as the basic standard or limit. It may be
concluded that the ‘sum’ used under
section 194N shall be treated as ‘sum’ ‘over and above’ Rs. 1 crore.
4.1-3. ‘Such Sum’
In New Webster's Dictionary and Thesaurus, the meaning
of ‘such’ is given as something just mentioned (used to avoid the repetition of
one word twice in a sentence). Thus, generally speaking, the use of the word
‘such’ as an adjective prefixed to a noun is indicative of the draftsman's
intention that he is assigning the same meaning or characteristic to the noun
as has been previously indicated or that he is referring to something which has
been said before.
Therefore, for section 194N, ‘such sum’ should be taken as similar to ‘sum’ paid to a person. Consequently, we may conclude that the tax
shall be deducted at the rate of 2% only
on the ‘amount’ which exceeds Rs. 1 crore.
1.2. Threshold of Rs. 20 lakhs and Rs. 1 crore of cash withdrawal
A new proviso has
been inserted to Section 194N, which changes the threshold limit
for deduction of tax from Rs. 1
crore to Rs. 20 lakh if the person, has not
filed return of income (ITR) for
three previous years immediately preceding the previous year in which cash is withdrawn, and the due date for filing
ITR under section 139(1) has expired. The deduction of tax under this situation
shall be at the rate of:
a) 2% from the amount withdrawn in cash if the aggregate of the amount
of withdrawal exceeds Rs. 20 lakhs during the previous year; or
b) 5% from the amount withdrawn in cash if the aggregate of the amount
of withdrawal exceeds Rs. 1 crore during the previous year.
In the above situation, the tax shall be deducted on the
amount exceeding Rs. 20 lakhs or Rs. 1 crore, as the case may be.
It
is going to be a cumbersome task for the banks to ensure that this condition
has triggered so that tax shall be deducted at the higher rate and from the
reduced threshold limit. Banks will now require to ask the account holders to
submit the proof of filing of return for preceding 3 financial years. As different
due dates have been prescribed in Section 139(1) for filing of return, banks
may not find it easy to substantiate that they were filed within the due date
specified in section 139(1).
The due dates for
the different class of taxpayers under section 139(1) are as below:
|
Situations
|
Due date for filing of return
|
|
|
|
|
If assessee is required to furnish a report of
transfer pricing (TP) Audit
in Form No. 3CEB
|
30th November
|
|
Company assessee not required to furnish transfer pricing
audit
report in Form No. 3CEB
|
30th September1
|
|
If
assessee is required to get its accounts audited under
Income-tax
Act or under any other law
|
30th September1
|
 |
1 The due date has been changed from ‘September 30’ to
‘October 31’ by the Finance Act, 2020, with effect from Assessment Year
2020-21.
|
If Individual is a working partner2 in a firm whose
accounts
are required to be audited.
|
30th September1
|
|
In any
other case
|
31st July
|
1.3. Exclusion from the provision
The exclusion provided previously in the
section 194N has been continued in
the new section 194N. However, the Govt.
may specify the recipient to whom the provisions of this section shall not
apply or apply at the reduced tax rate. Further, no tax shall be deducted
if the amount is withdrawn by the following
recipients:
a) Central or State Government
b)
Banks
c)
Co-op. Banks
d)
Post Office
e)
Banking correspondents
f)
White label ATM operators
g)
Other persons notified by the
Govt. in consultation with the RBI.
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