Complete Guide to TDS deduction on Cash Withdrawal under Section 194N
Section 194N comes into effect when a person frequently withdraws large amounts of cash from a bank or post office during a financial year. If the total withdrawal crosses the prescribed limit, the bank deducts TDS as per Income Tax rules before paying the cash. This provision mainly impacts individuals and businesses that frequently deal in cash.
This guide explains 194N TDS, limits, rates, exemptions, and how it applies to saving and current accounts, in simple words.
What is TDS on Cash Withdrawal (deduction under Section 194N)?
Section 194N applies when a person withdraws high-value cash from:
- Scheduled banks
- Co-operative banks
- Post offices
If total cash withdrawal crosses a specified limit in one financial year, TDS deduction on cash withdrawal is done by the bank or post office.
The rule applies to all accounts you hold with the same bank — saving, current, OD or CC.
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The section is triggered to deduction based on the total cash withdrawn from all accounts held with the same bank or post office in a financial year.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 Not Covered under Section 194N?
Certain entities are exempt from TDS under Section 194N, such as:
| Category | Exempt from 194N? |
|---|---|
| Central or State Government | Yes |
| Banking companies | Yes |
| Co-operative societies engaged in banking business | Yes |
| Post Office | Yes |
| Business correspondents of a bank | Yes |
| White label ATM operators | Yes |
For normal taxpayers and businesses, this exemption usually does not apply and tds to be deduct.
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- TDS @ 2% on the amount of cash withdrawn above ₹1 crore.
| Total Cash Withdrawal in a Financial Year | TDS Rate | On Which Amount? |
|---|---|---|
| Up to ₹1,00,00,000 | No TDS | - |
| Above ₹1,00,00,000 | 2% | On amount exceeding ₹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 above 20 lakhs on cash withdrawals:
| Total Cash Withdrawal in a Financial Year | TDS Rate |
|---|---|
| From ₹20,00,000 to ₹1,00,00,000 | 2% |
| Above ₹1,00,00,000 | 5% |
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.
- After filing the TDS Return, the bank issues 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.
Refund Rules for TDS Deducted under Section 194N
TDS deducted on cash withdrawal under Section 194N is not a final tax. If the TDS amount deducted by the bank is more than your actual income tax liability, you can claim a refund while filing your Income Tax Return (ITR). The deducted TDS is reflected in Form 26AS and AIS, and it can be adjusted against your total tax payable for the financial year. If your total income is below the taxable limit or your final tax liability is lower, the excess TDS will be refunded by the Income Tax Department after ITR processing. No separate refund application is required—filing the correct ITR on time is enough to claim the refund.
Conclusion
Section 194N is an important provision for anyone who regularly withdraws large amounts of cash from banks or post offices. Understanding the threshold limits, TDS rates and differences between ITR filers and non-filers helps you plan your transactions better and avoid unexpected tax deductions.
By keeping withdrawals within limits, filing ITR on time and shifting to digital payments, you can stay compliant and also contribute to India’s move towards a transparent, less-cash economy.