Understanding Income Tax Rule 194 N: TDS on Cash Withdrawals Explained

Learn about Income Tax Rule 194 N, its TDS rates on cash withdrawals, and how it impacts digital payments.

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Income tax rule 194 N mandates a 2% TDS (Tax Deducted at Source) on cash withdrawals exceeding INR 1 crore in a financial year from a bank, cooperative bank, or post office. If the recipient has not filed income tax returns for the past three years, the rate increases to 5% for withdrawals above INR 20 lakh. This aims to curb cash transactions and encourage digital payments.

FAQs & Answers

  1. What is the purpose of income tax rule 194 N? The purpose of income tax rule 194 N is to mandate a Tax Deducted at Source (TDS) of 2% on cash withdrawals exceeding INR 1 crore from banks, cooperative banks, or post offices, aiming to reduce cash transactions and promote digital payments.
  2. How does TDS under rule 194 N differ based on tax return filing history? If the recipient has not filed income tax returns for the past three years, the TDS rate increases to 5% for cash withdrawals exceeding INR 20 lakh.
  3. What amounts are affected by income tax rule 194 N? Income tax rule 194 N specifically impacts cash withdrawals over INR 1 crore in a financial year, with an increased rate for those withdrawing more than INR 20 lakh who have not filed tax returns.
  4. Which institutions are subject to income tax rule 194 N? Income tax rule 194 N applies to banks, cooperative banks, and post offices when processing cash withdrawals that meet the specified thresholds.

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