The Central Board of Direct Taxes ( CBDT ) on Monday notified clarification in relation to the notification issued under clause (v) of the proviso to section 194N of the Income Tax Act, 1961 prior to its amendment by Finance Act, 2020.

Section 194N of the Act as inserted by Finance ( No. 2 ) Act, 2019 provided for deduction of tax at source on payment made by a banking company, a cooperative society engaged in the business of banking or post office, in cash to a recipient exceeding Rs. 1 crore in aggregate during a financial year from one or more account maintained by such recipient.

As per the provision, every person making cash payment in excess of Rs. 1 crore in an FY to a recipient has to deduct TDS at the rate of 2%.

Clause (v) of the proviso to the section 194N had empowered the Central Government, in consultation with the Reserve Bank of India (RBI), to exempt by way of notification in Official Gazette, persons or class of persons so that payments made to such persons or class of persons shall not be subjected to TDS under this section.

In exercise of the power, the Central Government has issued three notifications.

Firstly, the Government issued Notification 68 of 2019 dated September 18, 2019, which notified that Cash Replenishment Agencies (CRAs) and franchise agents of White Label Automated Teller Machine Operators (WLATMOs) for the purpose of replenishing cash in ATMs operated by these entities subject to conditions.

Secondly,  the Government issued Notification 70 of 2019 dated September 20, 2019, which notified that Commission agent or trader operating under Agriculture Produce Market Committee (APMC) and registered under any law relating to Agriculture Produce Market of the concerned State have been exempted subject to conditions.

Thirdly,  the Government issued Notification 80 of 2019 dated October 15, 2019, which notified that the authorized dealer and its franchise agent and subagent and Full Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent for the purposes of Purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by Reserve bank of India; or Disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MFSS) of the Reserve Bank of India.

“Section 194N of the Act was amended by the Finance Act, 2020 (the FA, 2020) in order to make the provisions of the said section more stringent for non-ITR filers. It is to note that the clause (v) of the proviso to section 194N prior to its amendment has now become the fourth proviso to the said section. Representations have been received seeking clarification regarding the validity of the above-mentioned notifications in light of the amendments carried out by FA, 2020,” the Circular said.

“The matter has been examined by the Board and it is hereby clarified that the above mentioned three notifications shall be deemed to be issued under the fourth proviso to section 194N as amended by the FA, 2020. It is further reiterated that the exemption allowed under the said notifications shall be subject to the conditions laid down therein,” the  Circular notified.