Clause 85 of the Finance Bill 2023 proposes to amend Section 194N of the Income Tax Act, 1961 to raise the threshold limit for cooperatives to withdraw cash without TDS from Rs. 1 crore to Rs. 3 crore.
Section 194N of the Income Tax Act, 1961, requires a banking company, a co-operative society engaged in the business of banking, or a post office that is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in cash to any person exceeding Rs. 1 crore during the previous year, to deduct tax at source of 2% of such sum at the time of payment.
Section 194N is being amended to provide that where the recipient is a cooperative society, tax deduction at source is required only if the payment or aggregate of cash payments during the previous year exceeds Rs. 3 crore.
As a result, it is proposed to raise the threshold limit for co-operative society cash withdrawals without attracting TDS from Rs. 1 crore to Rs. 3 crore.
1. According to Section 194N of the Income Tax Act, a banking company or a co-operative society engaged in the business of banking or a post office that is responsible for paying any sum to any person (referred to as the recipient) shall deduct an amount equal to 2% of such sum as income-tax at the time of payment of such sum in cash. The requirement to deduct tax applies only when the total amount paid in cash during the year exceeds one crore rupees.
2. However, in the case of a non-filer recipient, tax is to be deducted at the rate of 2% on any sum exceeding Rs. 20 lakh but not exceeding Rs. 1 crore in aggregate during the fiscal year, and at the rate of 5% on any sum exceeding Rs. 1 crore in aggregate during the fiscal year.
3. A non-filer is defined as a recipient who has not filed any income-tax returns for the three assessment years immediately preceding the previous year in which such payment is received.
4. It is proposed to amend section 194N of the Income Tax Act by inserting a new proviso to provide that where the recipient is a co-operative society, the provisions of this section shall have effect, as if for the words “one crore rupees”, the words “three crore rupees” had been substituted.
5. This amendment will go into effect on April 1, 2023.