Three Cash Deposits and a ₹1.30 Crore Withdrawal
The branch manager of a scheduled commercial bank reviews the account of M/s Sharma Traders, a proprietorship with no GST registration. Over three consecutive working days the firm deposits cash of ₹1,80,000, ₹1,85,000 and ₹1,60,000 (total ₹5,25,000) into its current account, each time describing the money as "seasonal sale proceeds". The previous year's statement shows credits of ₹48 lakh, while the firm's declared turnover was ₹9 lakh. On the fourth day the proprietor arrives to withdraw ₹1.30 crore in cash, explaining that he has bought agricultural land and must pay in cash. The KYC file holds a PAN but no income-tax return for the last three years.
The manager must separate what is mandatory, what is discretionary and what must be refused. The bank uses the standard reporting thresholds: a cash transaction report is triggered when cash transactions in an account exceed ₹10 lakh in a month, and PAN is required for a cash deposit exceeding ₹50,000 in a day.
1. For the three deposits, which obligations actually bite - PAN, cash transaction report, or suspicious transaction report?
Read the worked answer
Three separate duties must be kept apart.
- PAN. Each day's deposit exceeds ₹50,000, so the bank must obtain and verify PAN (or Form 60 where PAN is not held) under Rule 114B of the Income-tax Rules. PAN is on file, so the clause is satisfied - but the deposit slips should record it.
- Cash transaction report (CTR). The monthly aggregate is ₹5,25,000, below the ₹10 lakh threshold, so no CTR is due yet. The threshold applies to aggregate cash transactions in the account in a calendar month, and the report goes to FIU-IND by the 15th of the following month. Further deposits will cross it, so the account must be monitored.
- Suspicious transaction report (STR). No monetary threshold applies. Three near-identical deposits just under ₹2 lakh, declared turnover of ₹9 lakh against credits of ₹48 lakh, and a vague one-line explanation are textbook structuring indicators. The branch should flag the account and record a reasoned decision on filing an STR with FIU-IND - "below the CTR limit" is not a reason to do nothing. The decision, and its reasoning, must be documented either way.
2. On the ₹1.30 crore cash withdrawal, compute the tax deductible at source if the proprietor has filed returns for the three preceding years, and if he has not.
Read the worked answer
Section 194N applies to cash withdrawals, with the threshold and rate depending on the payer's filing history.
Case 1 - returns filed for the three preceding assessment years: TDS is 2% on the amount above ₹1 crore. Amount above threshold = 1,30,00,000 − 1,00,00,000 = ₹30,00,000. TDS = 2% × 30,00,000 = ₹60,000. Net paid = ₹1,29,40,000.
Case 2 - no returns for the three preceding years (the file suggests this): the threshold drops to ₹20 lakh, and the rate is 2% up to ₹1 crore and 5% above ₹1 crore. 2% × (1,00,00,000 − 20,00,000) = 2% × 80,00,000 = ₹1,60,000; 5% × 30,00,000 = ₹1,50,000. Total TDS = ₹3,10,000. Net paid = ₹1,26,90,000.
The practical step is to establish the filing status from the records or a declaration rather than assume it; Form 15G/15H cannot be accepted against section 194N.
3. The proprietor asks the manager to pay the money in instalments over several days "so that the tax does not apply". Can the bank do that, and on what grounds may it refuse the withdrawal itself?
Read the worked answer
No. Section 194N operates on the aggregate of cash withdrawals by a person from all accounts maintained with the bank during the financial year. Splitting ₹1.30 crore across days, branches or accounts does not reduce the TDS; it only creates a record of deliberate structuring, which is itself an indicator supporting a suspicious transaction report. The bank must deduct the tax at source and pay the net amount.
Refusal is a separate question. A bank may decline or delay a withdrawal only on valid grounds: insufficient balance, a lien or freeze, unresolved KYC doubts, or a direction from an authority. Objection to TDS is not one of them. The correct handling is to explain the deduction, issue the TDS certificate, and - given the turnover mismatch and the earlier cash pattern - complete the suspicious-transaction assessment alongside the withdrawal.