TDS on Cash Withdrawal: Rates, Limits and Rules 2026

Introduction

TDS on cash withdrawal applies when cash taken from one or more accounts maintained with a bank, cooperative bank, or post office crosses the prescribed annual limit. The provision does not prohibit cash withdrawal. It requires the paying institution to deduct tax when the legal conditions are met.

From April 1, 2026, TDS on cash withdrawal is governed by Section 393(3), Table Serial Number 5 of the Income-tax Act, 2025. The law prescribes a 2% rate and separate limits for cooperative societies and other recipients. Earlier withdrawals were governed by Section 194N of the Income-tax Act, 1961. The Income-tax Act, 2025 came into force on April 1, 2026.

What Is TDS on Cash Withdrawal?

TDS on cash withdrawal is a deduction made by the institution paying cash to an account holder. The payer for this provision is the banking company, cooperative society carrying on banking business, or post office releasing the cash.

The law covers cash paid from one or more accounts maintained by the recipient. TDS on cash withdrawal may therefore apply to savings, current, cash-credit, and similar accounts. Electronic transfers such as NEFT, RTGS, IMPS, and UPI are outside this entry because it specifically covers cash payments.

Applicable Section from April 1, 2026

The Income-tax Act, 2025 came into force on April 1, 2026. TDS on cash withdrawal is now covered under Section 393(3), Table Serial Number 5.
The entry covers any sum paid in cash from one or more accounts maintained by the recipient. It identifies the payer as:

• A banking company;
• A cooperative society engaged in banking; or
• A post office.

The statutory rate for TDS on cash withdrawal is 2%. Section 393(3) applies to payments made to any person and is not restricted only to resident account holders.

TDS on Cash Withdrawal Rate and Threshold

The higher ₹3 crore threshold depends on the status of the recipient. It does not apply merely because the payer is a cooperative bank. If a company withdraws cash from a cooperative bank, the company ordinarily falls under the ₹1 crore limit because it is not a cooperative society.

How Is the Annual Limit Calculated?

The threshold for TDS on cash withdrawal is calculated by adding cash payments from one or more accounts maintained with the same institution during the tax year.

Suppose a business maintains a current account and a cash-credit account with Bank A. It withdraws ₹55 lakh from the current account and ₹50 lakh from the cash-credit account. Bank A considers the combined withdrawal of ₹1.05 crore. The business cannot claim a separate ₹1 crore threshold for each account.

If the business also withdraws ₹40 lakh from Bank B, Bank B tracks the accounts maintained with it. Businesses should therefore monitor TDS on cash withdrawal institution-wise rather than treating every account as an independent threshold. This follows from the statutory wording that connects the aggregate with one or more accounts maintained with the paying institution.

When Is Tax Deducted?

TDS on cash withdrawal is deducted when the institution makes the cash payment. A withdrawal request does not itself complete the deduction event. Banks monitor aggregate cash payments during the tax year. Businesses expecting large withdrawals should check their year-to-date total before requesting cash.

Is TDS Calculated Only on the Excess Amount?

This point requires careful reading under the new law. Section 393(3)(a) states that tax is deducted on the entire amount of the income or sum where the amount or aggregate exceeds the threshold. However, the official CBDT TDS rate table describes TDS on cash withdrawal as applying to cash withdrawal “in excess of” ₹1 crore or ₹3 crore.

The current official material does not provide a numerical example explaining the tax base when a payment causes the annual aggregate to cross the threshold. Therefore, an old Section 194N calculator should not be applied automatically to a withdrawal governed by Section 393.

The bank’s deduction working, statutory text, and any later CBDT clarification should be checked because the earlier provision expressly used an excess-withdrawal framework. The difference between the wording of Section 393 and the summary in the official rate table should not be ignored.

Earlier Section 194N Rules

Before April 1, 2026, TDS on cash withdrawal was governed by Section 194N of the Income-tax Act, 1961. A person who had filed an income-tax return for any or all of the three relevant preceding assessment years generally faced 2% deduction on cash withdrawal exceeding ₹1 crore.

A person who had not filed a return for all three relevant preceding assessment years could be covered after withdrawals crossed ₹20 lakh. The earlier law prescribed 2% for the applicable lower band and 5% after the higher threshold. The ₹1 crore threshold was increased to ₹3 crore for a cooperative society.

These non-filer slabs belong to the earlier law. Section 393 states a 2% rate and does not reproduce the separate ₹20 lakh and 5% structure. Withdrawals made from April 1, 2026 should not be explained using the earlier non-filer rates.

Persons Exempt from TDS on Cash Withdrawal

The Income-tax Act, 2025 provides that TDS on cash withdrawal is not required for specified payments made to:

• The Government;
• A banking company, cooperative banking society, or post office;
• A qualifying business correspondent operating under RBI guidelines; and
• A qualifying white-label ATM operator operating under RBI authorisation.

The exemption depends on the recipient’s identity and the stated conditions. A business does not become exempt merely because it regularly deals in cash. A person relying on a notification should verify whether it remains effective under the new Act.

What Happens When PAN Is Not Furnished?

A valid PAN is important for TDS on cash withdrawal. Section 397(2) provides a higher deduction rule when a person receiving an amount subject to TDS does not furnish a valid PAN.

Tax is generally deducted at the higher of the rate specified in the provision, the rate or rates in force, or 20%. Since the normal cash-withdrawal rate is 2%, a missing or invalid PAN can result in a substantially higher deduction.

Account holders should confirm that their PAN is correctly recorded before making a large cash withdrawal.

Is Cash Withdrawal Treated as Income?

TDS on cash withdrawal does not mean that money taken from a person’s own account becomes taxable income. It is a tax collection and reporting mechanism linked to a high-value cash payment.

Official Income Tax Department guidance recognises that tax deducted on large cash withdrawals is not treated as the recipient’s deemed income merely because tax has been deducted. The taxability of the underlying funds depends on their source and the normal provisions of law. Businesses should still maintain books, cash records, vouchers, and supporting documents.

Can the Deducted Amount Be Claimed as Credit?

The amount deducted as TDS on cash withdrawal may be claimed as tax credit in the applicable income-tax return, subject to correct reporting against the taxpayer’s PAN.

The taxpayer should review the credit shown in Form 168 and compare it with bank statements. If it is missing or incorrect, the deducting institution should be contacted. The official CBDT guidance states that the taxpayer should claim credit according to the amount reflected in Form 168 and reconcile any difference with the deductor.

TDS on cash withdrawal is not necessarily a final tax cost. A refund may arise when total prepaid taxes exceed the final income-tax liability after the return is filed and processed.

Practical Steps for Businesses

Businesses with high cash requirements should:

• Maintain an institution-wise record of cash withdrawals.
• Combine withdrawals from all accounts with the same bank.
• Identify whether the ₹1 crore or ₹3 crore threshold applies.
• Verify PAN and entity status in the institution’s records.
• Check whether a statutory or notified exemption applies.
• Reconcile each deduction with the tax credit statement.
• Preserve records showing the purpose of the withdrawn cash.
• Consider digital payment methods where practical.

These controls can reduce surprises when TDS on cash withdrawal becomes applicable.

Common Mistakes to Avoid

A common error is assuming that every account has a separate annual threshold. TDS on cash withdrawal is based on the aggregate from accounts maintained with the same paying institution.

Another mistake is applying the earlier ₹20 lakh non-filer limit to withdrawals governed by the Income-tax Act, 2025. Taxpayers should first identify the date and tax year of the withdrawal.

Other errors include using an invalid PAN, assuming cash-intensive businesses are automatically exempt, and treating the deduction as a permanent expense. Credit should be claimed only after matching it with the official tax record.

Simplify TDS Filing with Experts

Managing TDS on cash withdrawal may require reconciliation of bank deductions, review of PAN-related mismatches, verification of the tax credit, and correct reporting in the income-tax return.

Ebizfiling provides professional assistance with TDS return filing, TDS return revision, and income-tax return filing. Its services include document review, return preparation, filing, acknowledgment sharing, and basic post-filing guidance. Where a mismatch affects TDS on cash withdrawal, professional review can help identify whether the issue relates to PAN, reporting, the deduction amount, or the tax credit statement.

For assistance with TDS and income-tax compliance, contact Ebizfiling at +91 9643203209 or email info@ebizfiling.com.

Conclusion

TDS on cash withdrawal is governed from April 1, 2026 by Section 393(3), Table Serial Number 5 of the Income-tax Act, 2025. The normal rate is 2%. The threshold is ₹1 crore for most recipients and ₹3 crore where the recipient is a cooperative society.

Taxpayers should combine cash withdrawals from accounts maintained with the same institution, keep PAN records updated, verify exemption conditions, and reconcile the deduction before filing their return. They should also separate the new Section 393 rules from the earlier Section 194N non-filer framework.

Careful tracking of TDS on cash withdrawal can protect cash flow, reduce reporting errors, and support the correct claim of tax credit.

Frequently Asked Questions