Why 194N TDS Exemption is Crucial for White Label ATM Settlement Accounts

In the world of ATM operations, particularly for White Label ATM (WLA) franchisees and operators, the smooth movement of cash is essential to daily business. However, the introduction of Section 194N under the Income Tax Act has created challenges. Cash withdrawals beyond a specified limit are now subject to TDS (Tax Deducted at Source), posing potential cash flow issues for ATM settlement accounts.

So why is an exemption from 194N so important for ATM operators? Let’s break it down.

🔍 What is Section 194N?

Section 194N of the Income Tax Act mandates a 2% TDS on cash withdrawals exceeding ₹1 crore in a financial year. The deduction increases to 5% if the PAN is not updated or if the limit is breached repeatedly. This regulation was designed to discourage high-value cash transactions and promote digital banking. However, for industries like White Label ATM operations, high cash withdrawals are a necessity, not an option.

🏧 Why ATM Operators Need High Cash Withdrawals

White Label ATM franchisees operate ATMs in various locations, including rural, semi-urban, and urban areas. In these locations, digital payments or cardless transactions may not always be feasible. As a result, cash replenishment becomes an everyday requirement.

Every time an ATM is loaded, cash must be withdrawn from the franchisee’s or operator’s settlement account. In high-traffic locations, these annual withdrawals can easily exceed ₹1 crore—even within a single month. Without exemption from 194N, these withdrawals would lead to repeated TDS deductions, severely impacting working capital and profitability.

💡 Why 194N Exemption is Essential for WLA Settlement Accounts

1. Avoids Unnecessary Tax Deductions

   ATM businesses operate on thin margins. A 2% or 5% deduction each time cash is withdrawn for legitimate ATM operations creates a significant cash crunch, despite the fact that it is a recoverable tax.

   
   

2. Ensures Liquidity for Daily Operations

   Settlement accounts are vital for daily ATM cash replenishments. A TDS deduction every time cash is withdrawn means less money available for loading ATMs. This can result in possible downtime and customer dissatisfaction.

   
   

3. Protects Profit Margins

   The ATM business earns around ₹8–₹11 per transaction. If 2% TDS is deducted on high-value withdrawals (for example, ₹10 lakhs or more), a large portion of the month's profit is eliminated—particularly when multiple withdrawals are made.

   
   

4. Maintains Operational Compliance

   RBI and NPCI guidelines require that the ATM cash flow cycle be traceable and smooth. TDS deductions at every step hinder financial transparency and pose compliance challenges.

   
   

✅ How to Apply for 194N Exemption?

WLA operators or ATM franchisees must submit an application under Rule 28AA to the Jurisdictional Assessing Officer of the Income Tax Department. Here are the key requirements for the application:

• Contract with WLA Partner

• RBI License of WLA Partner

• Authorization from the Franchise stating that the Account will only be used for ATM Cash Loading

• Authorization from the WLA operator

  
  

Once approved, the bank will not deduct TDS under 194N. This ensures seamless cash withdrawals for ATM operations.

📌 Importance of Understanding TDS Deductions

Understanding TDS deductions and exemptions is fundamental for ATM operators. It impacts their cash flow and operational efficiency. Every withdrawal directly influences the amount available for cash replenishment in ATMs. Therefore, operators must stay informed about their rights and the regulations that affect their business.

Consulting Experts

To ensure compliance and make informed decisions, operators should consider consulting financial experts. These professionals can help navigate the complexities involved in the exemption process under Section 194N. Additionally, they can provide valuable insights tailored to the unique needs of WLA operations.

📊 Final Thoughts

The TDS under Section 194N was never intended to encumber essential financial services like ATMs. For WLA operators and franchisees, obtaining an exemption under 194N is not just beneficial; it is a business necessity.

It protects working capital, prevents cash loading delays, and ensures profitability on every ATM transaction. If you're planning to start or scale your ATM franchise business, ensure your settlement account is exempt from 194N. Consider consulting with professionals who understand the industry's unique needs.

If you have not yet acquired your 194N TDS Exemption letter from your Bank, now is the time to act. For any clarifications, please reach out to us at atmfranchise@pixellpay.com

Important: Have got your 194N TDS Exemption letter from your Bank? For any clarifications please write to us on atmfranchise@pixellpay.com