SECTION 194N OF THE INCOME TAX ACT – CURBING OF CASH WITHDRAWALS
THE LAWWAY WITH LAWYERS JOURNAL VOLUME:-14 ISSUE NO:- 14 , AUGUST 1 , 2024 ISSN (ONLINE):- 2584-1106 Website: www.the lawway with lawyers.com Email: thelawwaywithelawyers@gmail.com Authored By:- Pranav Sri Krishna B SECTION 194N OF THE INCOME TAX ACT – CURBING OF CASH WITHDRAWALS ABSTRACT: India is a rapidly developing country with ambitious targets to achieve in the global arena. Eradication of poverty, proper transfer of benefits, and accountability in its economy are some significant aspects that will help India reach its goals. This paper aims to introduce the robust digital payment landscape of India and the country’s aim to expand its territoriality. This research paper sheds light on a significant move made by the Government of India in order to achieve the above goals. This paper explores the Government’s decision to tax huge cash withdrawals by the inclusion of Section 194N into the Income Tax Act, 1961 to discourage cash transactions. The paper explores various aspects of Section 194N such as its obligations, withdrawal limits, exceptions, etc. It also discusses the emphasis of placing a deterrent provision such as this as it makes way for more accountability, reduction in leakage of funds, and direct transfer of benefits. The paper also examines various judicial decisions that have played a part in shaping Section 194N to its current form. It throws light on various technicalities within the Income Tax Act that have hampered the operation of this section. The paper concludes by highlighting the resilient nature of the provision which stands tall despite various legal challenges and showcases how important it is for shaping the financial behaviour in the country’s economy. Keywords: 1) Income Tax 2) Section 194N 3) Direct Transfer of Benefits (DBT) 3) Cash Withdrawals 4) Accountability 5) Tax Deducted at Source. INTRODUCTION: The global economy is actively pushing for a cashless future where the aim is to curb cash/currency transactions. One of the best-known reasons to adopt this method is to bring accountability. It is also pertinent to note that countries spend a huge sum to print such currencies and coins. It is suffice to say India too is an active and prominent partner in this global initiative. In the year 2022, India had surpassed a whopping 89.5 Million digital Transactions1. The Indian Government has made significant efforts to discourage cash transactions, one such effort is the introduction of the Unified Payments Interface (UPI) and the setting up of the National Payments Corporation of India (NPCI). UPI turned out to be a remarkable project that aided the government’s motives in curbing cash transactions. For instance, in January 2024 alone UPI saw a whopping 12.2 Million transactions amounting to Rs. 18.41 Crores2. It is safe to say that India is one of the biggest contributors toward a global cashless economy with it expanding its wings by implementing its digital transaction interface in foreign states such as Sri Lanka, Mauritius, Bhutan, Oman, Nepal, France, and UAE3. THE NEED FOR SECTION 194N OF THE IT ACT, 1962: The Government in its journey towards a chase economy has successfully found ways to curb currency transactions. However, still, a large part of the population continues to use cash as their primary medium of transaction, especially small-scale businesses, local vendors, etc. Some transact specifically in cash to escape accountability and taxation. To discourage this, a solution was to be found. One should note that the primary source for people to receive currencies is from banks, especially through ATMs. In order to discourage this, banks imposed a daily threshold limit of Rs.50,000/-. The banks also started to levy charges for ATM withdrawals to make people regret withdrawing cash and to boost digitized transactions. The other way to get cash out of banks was through cheques. People found this to be an easy method to pull currencies out of the bank coffers. Even many state governments in the country 1India dominating digital payment landscape with 89.5 million transactions in 2022, DD News (Jan. 10, 2023) (Acessed 16.07.2023). 2 Monthly UPI Transaction Metrics (NPCI) https://www.npci.org.in/statistics/monthly-metrics (Acessed 16.07.2023). 3India Briefing, Unified Payments Interface (UPI) from India: Expanding Global Use, (Feb. 29, 2024), (Acessed 16.07.2023). were found withdrawing huge amounts of cash in order to provide benefits to the public. The Central Government, in order to demoralize such withdrawals, had decided to charge Tax Deducted at Source (TDS) on them. Thus came Section 194N of the Income Tax Act, 1961 inserted by the Finance Act of 2019. PROVISIONS OF SECTION 194N: Payment of certain amounts in cash.42 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, being the amount or the aggregate of amounts, as the case may be, in cash exceeding 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 percent of such sum, as income-tax: Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of* file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that— (i) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and (ii) the deduction shall be— (a) an amount equal to two percent of the sum where the amount or aggregate of amounts, as the case may be, being paid in