Section 194N

Section 194N — the law in short

What the courts have decided on section 194N, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Raitha Seva Sahakara Sangha Niyamita v Union of India High CourtHelps taxpayerNo later treatment found
  My society's bank has marked a lien on its current account for s.194N tax on cash withdrawals which the bank itself never deducted. Can a bank do that, and is the society liable?
  No, on both counts. The Karnataka High Court held that the bank had no statutory authority to create a lien over the amount lying in its customer's current account. The obligation under s.194N is cast on the paying bank and is to be discharged at the time of payment; the consequence the Court identified is a penalty on the bank under s.271C, imposed by a Joint Commissioner, and the section does not contemplate either a deduction liability or a penalty on the customer.
• Molasi Primary Agricultural Cooperative Credit Society Ltd v ITO High CourtHelps department
  We are a primary agricultural credit society drawing cash to lend to farmers. Must the bank still deduct under s.194N?
  Yes. The Madras High Court held that a primary agricultural credit co-operative society is not within the exceptions to s.194N, so the deduction on cash withdrawals above the threshold stands, and the requirement is non-negotiable except in line with the specific exceptions in the proviso. Relief, if any, has to come from the competent government authority; s.194N is not one of the sections for which a nil or lower deduction certificate can be sought under s.197.
• Amalgamated Plantations Pvt. Ltd. v. Union of India (Calcutta High Court) — the challenge to section 194N as beyond Entry 82 because a cash withdrawal is not income, and the interim stay that has followed it High CourtHelps taxpayerUnder appeal
  My company withdraws crores in cash every month to pay plantation wages. The bank is deducting under section 194N even though the withdrawal is my own money and not income. Is there a challenge to the section, and where does it stand?
  There is, and it is live rather than decided. Md. Nizamuddin J of the Calcutta High Court, holding that the grounds 'have some substance and requires consideration for final adjudication', admitted the writ petition and granted an interim order restraining the authorities from deducting tax at source under section 194N, following a line of unreported Kerala High Court orders beginning with Kanan Devan Hills Plantations Company Pvt. Ltd. v. Union of India, WP(C) No. 1658 of 2020, order dated 13 August 2020. No decision on the merits is given here: none has been established.
• Tirunelveli District Central Co-op Bank v JCIT High CourtHelps taxpayerPartly overruled — read this first
  Must I deduct under 194N on cash withdrawals that are not the account holder's income?
  No. Section 194N requires a sum to be deducted 'as income-tax', and income-tax is a levy on income — where no income results, there is no levy, and the TDS machinery is not itself a charging provision. The bank must be allowed to lead evidence that the payee bore no tax liability on the sum withdrawn.
• Statutory position — s.194N: the two and five per cent structure, the one crore, three crore and twenty lakh thresholds, and who is outside the section altogether CBDT Circulars & InstructionsCuts both ways
  My bank has deducted under section 194N on my cash withdrawals. What are the thresholds and rates as the section now stands, and is there anything that takes me out of it?
  Section 194N obliges a banking company, a co-operative society carrying on the business of banking, or a post office to deduct two per cent from any sum paid in cash exceeding one crore rupees during the previous year, from one or more accounts maintained by the recipient with it, computed on the aggregate of amounts paid in the year. Where the recipient is a co-operative society, a proviso substitutes 'three crore rupees' for 'one crore rupees' with effect from 1 April 2023; and where the recipient has not filed returns for all of the three assessment years whose section 139(1) time limit has expired immediately preceding the previous year, the threshold falls to twenty lakh rupees with deduction at two per cent between twenty lakh and one crore and five per cent above one crore.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.