Under the Income Tax Act, 1961, a banking company (to which the Banking Regulation Act, 1949 (10 of 1949) applies), a co-operative society (engaged in carrying on the business of banking) or a post office, which is responsible for paying a sum exceeding one crore rupees (INR 1 crores) in cash during a year (to any person), is required to deduct tax as TDS at 2% under section 194N.
Section 194N states that: in case the recipient of the amount has not filed his/her/their Income Tax Returns for three previous years (previous years immediately preceding the year in which the payment of the sum is made), for which, the time limit to file the return of income has expired, the provisions of this section will have to be considered in its modified form. The provisions applicable in this case are:
- If the sum to be paid to the recipient (amount or the aggregate of amounts, as the case may be) in cash exceeds twenty lakh rupees (INR 20 lakhs) during the previous year, tax u/s 194N will have to be deducted; and
- Here, the deduction will be:
- An amount equal to two per cent (2%) of the sum when the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees (INR 20 lakhs) during the previous year but does not exceed one crore rupees (INR 1 crores); or
- An amount equal to five per cent (5%) of the sum when the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees (INR 1 crores) during the previous year.
Previously, for determining the recipients’ ITR filing status, financial institutes used to depend on the documents provided by the recipient/assessee/deductee (account holder).
To simplify the process and assist the deductor/s, the Central Board of Direct Taxes (CBDT) has enabled an online mechanism for determining the ITR filing status. Here, the deductor/financial institute can visit the income tax portal and fetch the recipient’s filing status. When the PAN is entered, the department fetches the ITR filing status and provides the rate at which tax is to be deducted u/s 194N for the given PAN.
Step 1: Visit the Income Tax Portal and under ‘Quick Links’ select ‘Verification of applicability u/s 194N’.
Alternatively, you can directly click on this link. Click here to verify applicability u/s 194N.
Step 2: Enter the PAN of the recipient and your mobile number. Accept the declarations.
Step 3: Enter the One Time Password (OTP) received on the number submitted in the previous step and click on submit.
On successful validation of the OTP, the Income Tax Portal will fetch the required details in the background and display the applicable rate of TDS (u/s 194N) for the PAN entered in step 2.