If you run a business or are planning to set up one, it is important to have a current account to manage the day-to-day financial transactions. Furthermore, you must be aware of the term TDS, i.e., Tax Deducted at Source. Tax Deducted at Source is the tax collected by the government on the source of income of businesses. In this blog, we will try to explain the following in detail:
1. What TDS is and how it impacts businesses
2. The impact of TDS on current accounts
3. Section 194N of the Income Tax Act 1961<\/p>\n\n\n\n
Specific income earned by an individual or business owner are subject to tax. TDS, or Tax Deducted at Source, serves as a government tool for collecting taxes directly from the source of an individual’s or business’ income.<\/p>\n\n\n\n
The purpose of introducing this tool was to tax the income, either wholly or partially, when it is generated, to reduce tax evasion. <\/p>\n\n\n\n
FY2022-23 has seen TDS applied not only on incomes like salaries, sale of property, interest income and dividends, but also on the income you earn by way of online gaming, cryptocurrencies, and Non-Fungible Tokens NFTs. <\/p>\n\n\n\n
A current account is a bank account used to cater to the requirements of those in business and does not bear any interest. Given that a current account does not generate interest income, TDS is not relevant here. However, another area in a current account attracts TDS under Section 194N of the Income Tax IT Act of 1961 – cash withdrawals. <\/p>\n\n\n\n
Let\u2019s explore more about the provisions of Section 194N and TDS rules on current accounts.<\/p>\n\n\n\n
Section 194N of the IT Act was introduced in the Union Budget of 2019 by the then Finance Minister, Nirmala Sitharaman, mainly to dissuade cash payments. As such, TDS applies to cash withdrawals that surpass \u20b91 crore.<\/p>\n\n\n\n
However, in the Union Budget of 2020, the TDS limit u\/s 194N was reduced to \u20b920 lakhs, for those taxpayers who did not file their ITRs for the previous 3 years.<\/p>\n\n\n\n
In the Union Budget of 2023, the threshold limit for annual cash withdrawals for cooperative societies was increased to \u20b93 crores.<\/p>\n\n\n\n
According to Section 194N, if you have cash withdrawals in a particular fiscal year exceeding \u20b920 lakhs or \u20b91 crore as the case may be, TDS will be applicable. This applies to the sum or an aggregate of sums withdrawn from a specific bank in the financial year. <\/p>\n\n\n\n
Any person who pays either a sum or an aggregate of sums exceeding the specified limit is responsible for deducting the TDS of 2% of the sum from the receiver\u2019s account. <\/p>\n\n\n\n
The following entities are tasked with TDS deduction:<\/p>\n\n\n\n
The following taxpayers are liable to pay this tax:<\/p>\n\n\n\n
The provisions of this section do not apply to payments made to:<\/p>\n\n\n\n
Though current accounts do not generate interest income, they offer the benefit of limitless cash withdrawals. Therefore, you’re free to withdraw any sum, provided it aligns with Section 194N of the Income Tax Act.<\/p>\n\n\n\n
Section 194N has laid down TDS rules regarding cash withdrawals. The table below will give you an idea of the TDS applicable.<\/p>\n\n\n\n TDS will be deducted at the rates prescribed if cash withdrawals made by the taxpayer are more than \u20b920 lakhs or \u20b91 crore as the case may be during the fiscal year.<\/p>\n\n\n\n If you are a merchant or retailer, a zero-balance current account like IndusInd Bank Indus Tarakki Current Account would help you manage your daily transactions seamlessly and take your business a notch higher. <\/p>\n\n\n\n So, how is the threshold limit calculated for cash withdrawals? While making a cash payment exceeding \u20b91 crore to the bank account of an individual, the tax will be deducted by you, the payer. This deduction is made at the time of making the payment. <\/p>\n\n\n\n You must note that this limit of \u20b91 crore in a fiscal year is concerning the post office or bank account and not the taxpayer’s account. Suppose you have two bank accounts with two different banks. You have filed ITRs for the previous three years and made cash withdrawals of \u20b91 crore each from both banks. This means both these individual cash withdrawals amounting to \u20b92 crores in total will not attract any TDS in this scenario. In case the cash withdrawals exceed the specified limit in both banks, the bank must deduct the TDS at the rate applicable.<\/p>\n\n\n\n A current account refers to a non-interest-bearing account that caters to individuals or businesses who engage in high-volume transactions with the respective banks daily.<\/p>\n\n\n\n The two key attributes that make a current account appealing for business owners include:<\/p>\n\n\n\n You can easily open an online current account with IndusInd Bank and get rid of the hassles involved with traditional banking. IndusInd Bank\u2019s digital current account offerings<\/a> are designed in a way to add more value to your business.<\/p>\n\n\n\n The benefits offered include:<\/p>\n\n\n\n As current accounts do not pay any interest on the credit balances, they do not attract TDS rules. Nonetheless, transactions in a current account are subject to the stipulations of Section 194N of the Income Tax Act 1961.<\/p>\n\n\n\n To enjoy seamless business transactions as a business owner or trader, you must own a current account with the best bank for your current account. So what are you waiting for?<\/p>\n\n\n\nCash withdrawal amount or aggregate sum of withdrawal<\/strong><\/td> If the recipient has filed ITRs for any of the 3 previous years<\/strong><\/td> If the recipient has not filed ITRs for any of the 3 previous years<\/strong><\/td><\/tr> Up to \u20b920 lakhs<\/td> Nil<\/td> Nil<\/td><\/tr> More than \u20b920 lakhs, but not exceeding \u20b91 crore<\/td> Nil<\/td> 2%<\/td><\/tr> More than \u20b91 crore<\/td> 2%<\/td> 5%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Section 194N – Calculation of the threshold limit<\/h2>\n\n\n\n
A simple example will help you understand how the threshold limit is calculated:<\/p>\n\n\n\nWhat is a current account?<\/h3>\n\n\n\n
Conclusion<\/h2>\n\n\n\n