Who Is Covered under Section 194N?

Section 194N applies to almost all types of persons withdrawing cash, such as:

• Individuals
• Hindu Undivided Families (HUFs)
• Partnership firms and LLPs
• Companies
• Association of Persons (AOP) / Body of Individuals (BOI)
• Trusts, Societies and other entities

The section is triggered based on the total cash withdrawn from all accounts held with the same bank or post office in a financial year. This includes:

• Savings accounts
• Current accounts
• Overdraft (OD) or Cash Credit (CC) accounts

Who Is Exempt from TDS under Section 194N?

Certain entities are exempt from TDS under Section 194N, such as:

TDS Rates under Section 194N

1. When Income Tax Returns (ITR) Are Filed

If the person has regularly filed Income Tax Returns for the prescribed period (as per law), then the basic rule is:

• No TDS on cash withdrawals up to ₹1 crore in a financial year from one bank or post office.
• TDS @ 2% on the amount of cash withdrawn above ₹1 crore.

2. When ITR Is Not Filed (Higher TDS)

Where the person has not filed ITR for the relevant period, a higher TDS rate is applicable on cash withdrawals:

Illustrative Examples of TDS under Section 194N

Example 1 – ITR Filer

Mr. A has filed his ITR regularly. During the financial year, he withdraws a total of ₹1.30 crore in cash from the same bank (from multiple accounts).

• No TDS up to ₹1 crore.
• TDS is deducted @ 2% on the excess ₹30 lakh.
• TDS = 2% × ₹30,00,000 = ₹60,000.

Example 2 – Non-ITR Filer

Ms. B has not filed her ITR for the required period. She withdraws a total of ₹70 lakh in cash during the financial year.

• No TDS up to ₹20 lakh.
• TDS @ 2% applies on the balance ₹50 lakh (₹70 lakh − ₹20 lakh).
• TDS = 2% × ₹50,00,000 = ₹1,00,000.

Example 3 – Non-ITR Filer with Cash Above ₹1 Crore

A partnership firm which has not filed ITR withdraws ₹1.50 crore in cash from a bank in one financial year.

• From ₹0 to ₹20 lakh – No TDS.
• From ₹20 lakh to ₹1 crore – TDS @ 2%.
• Above ₹1 crore – TDS @ 5%.

Mode of Withdrawal Covered under Section 194N

TDS under Section 194N is applicable where cash is withdrawn:

• Through cheque at the branch
• Through withdrawal slip at the branch
• Over the counter cash withdrawal

Note: ATM withdrawals are also counted towards the total cash withdrawn. Once your combined withdrawals from all channels (branch + ATM) cross the threshold, the bank/post office will deduct TDS on further cash withdrawals.

Important Points to Remember

• The limit is calculated per bank or post office, not per individual account. Withdrawals from all accounts with the same bank are aggregated.
• For a joint account, the limit is applied at the account level, not separately for each holder.
• TDS under Section 194N is deducted by the bank or post office at the time of payment in cash.
• The bank will issue a TDS certificate in Form 16A for the tax deducted.
• The TDS amount appears in the taxpayer’s Form 26AS / AIS and can be claimed as credit while filing the Income Tax Return.

Compliance Tips for Taxpayers

• File your Income Tax Return regularly to avoid higher TDS rates.
• Avoid high cash withdrawals and use digital modes for large payments.
• Plan business cash requirements in advance to keep withdrawals within the threshold.
• Keep track of cash withdrawn from all accounts with the same bank or post office.

Why Was Section 194N Introduced?

The main objectives behind Section 194N are:

• To curb large unaccounted cash transactions and black money.
• To promote a less-cash and digital economy.
• To improve transparency and traceability of high-value transactions.
• To encourage formal banking channels and electronic payment systems.