Section 393(3) Income Tax Act 2025: TDS on Cash Withdrawal

Introduction

The Income-tax Act 2025 introduces a restructured tax framework aimed at simplifying and consolidating various TDS provisions. One such important provision is Section 393(3), which deals with TDS on high-value cash withdrawals.

Section 393(3) is part of the proposed Income-tax Act 2025 and replaces the existing framework of Section 194N under the Income-tax Act, 1961. The provision is basically designed to improve transparency in financial transactions, reduce large cash-based dealings, and encourage digital payment practices across the economy.

In this article, we explain the applicability, threshold limits, TDS rates, compliance mechanism, and practical implications of Sec. 393(3) under the proposed Income-tax Act 2025.

Overview of Section 393(3)

Section 393(3) of the proposed Income-tax Act 2025 governs the deduction of tax at source (TDS) on cash withdrawals exceeding prescribed limits during a financial year.

The provision aims to create a consolidated and technology-driven framework for monitoring high-value cash transactions through banking channels. Similar to the earlier Section 194N, the new section focuses on tracking large cash withdrawals and improving financial reporting efficiency.

The provision is proposed to apply from 1 April 2026, subject to government enforcement and official notification.

Main Objectives of Section 393(3)

The key objectives include:

• Reducing dependency on large cash transactions
• Promoting digital payment adoption
• Improving transparency in financial flows
• Strengthening tax reporting systems
• Monitoring high-value cash movement through banking channels
• Enhancing overall tax compliance efficiency

Applicability of Section 393(3)

The provision is expected to apply when cash withdrawals from banks, co-operative banks, or post offices exceed prescribed thresholds during a financial year.

The applicability under Section 393(3) is generally determined based on:

• Total cash withdrawn during the financial year
• PAN-linked withdrawal tracking
• Type of taxpayer or entity
• Banking institution where accounts are maintained
• Compliance status of the taxpayer

The monitoring mechanism is expected to operate through automated banking systems linked with PAN records.

Threshold Limits and TDS Rates

Under the proposed framework under Section 393(3), TDS may apply once cash withdrawals exceed the given annual threshold limits.

The expected threshold structure is as follows:

Under this provision, the deduction is generally expected to be made by the bank or specified institution at the time of cash withdrawal once the threshold is crossed.

Cash Withdrawal Monitoring

The monitoring system under Section 393(3) is expected to remain highly technology-driven and PAN-based.

The proposed process may include:

• PAN-linked monitoring of withdrawals
• Aggregation of withdrawals from one or more accounts maintained with the same institution
• Financial year-wise threshold tracking
• Automatic identification of threshold breaches
• TDS deduction once prescribed limits are crossed
• Reporting of deductions in tax statements such as Form 168 and AIS

This structured reporting mechanism under Section 393(3) is intended to improve transparency and reduce unaccounted cash transactions. Taxpayers can also cross-check such information through our AIS (Annual Information Statement) blog and understand the updates.

Institutions Responsible for Compliance under Section 393(3)

The responsibility for compliance under this provision is expected to lie with specified institutions such as:

• Banking companies
• Co-operative banks
• Post offices

These institutions will be responsible for monitoring withdrawals, deducting TDS where applicable, and reporting transactions under the prescribed tax reporting framework. Institutions responsible for deducting TDS under Section 393(3) must also ensure proper TAN application and reporting compliance under the Income Tax framework.

Exemptions under Section 393(3)

Certain entities and transactions are expected to remain outside the scope of Section 393(3).

The proposed exemptions may include:

• Government bodies
• Banking companies for operational requirements
• Co-operative banks in specified cases
• White-label ATM operators, subject to conditions
• Specified exempt institutions notified by the government
• Other regulated financial intermediaries as prescribed

These exemptions are intended to ensure the uninterrupted functioning of essential financial and banking operations.

Difference Between Old Section 194N and Section 393(3)

The proposed Section 393(3) largely restructures and replaces the earlier provisions of Section 194N under the Income-tax Act, 1961.

The proposed provision is designed to align with the government’s broader digital compliance and financial transparency initiatives.

Compliance and Reporting Mechanism

The compliance framework under Section 393(3) is expected to include:

• Automated withdrawal tracking through PAN
• System-generated threshold monitoring
• TDS deduction by specified institutions
• Reflection of deductions in Form 168 and AIS
• Availability of tax credit during income tax return filing

Taxpayers should regularly monitor their cash withdrawal patterns to avoid unnecessary compliance complications.

Impact of Section 393(3) on Taxpayers

This provision mainly impacts businesses and individuals involved in frequent or large cash transactions. It is expected to encourage:

• Reduced dependence on cash transactions
• Improved financial discipline
• Better transaction transparency
• Increased adoption of digital banking channels
• Stronger tax compliance monitoring

Businesses operating heavily in cash should carefully plan withdrawal activities under Section 393(3) to manage compliance efficiently.

How Ebizfiling Can Help?

At Ebizfiling, we understand that keeping up with changing tax laws under the Income Tax Act 2025 can feel overwhelming, especially when businesses are already managing daily operations, finances, and growth.

That’s why we help simplify compliance for you. Whether you need support with TDS return, Income Tax Return filing, cash transaction monitoring, bookkeeping and accounting, or complete tax compliance management, our experts work alongside you to make the entire process smoother and stress-free.

From understanding provisions like Section 393(3) to handling routine compliance requirements, we help businesses stay compliant, organized, and focused on what matters most,:your growth.

Conclusion

Section 393(3) of the proposed Income-tax Act 2025 introduces a structured framework for monitoring high-value cash withdrawals and deducting TDS once prescribed limits are crossed.

The provision focuses on improving transparency, strengthening financial reporting systems, reducing excessive cash-based transactions, and promoting digital compliance across the economy.

Taxpayers and businesses should stay informed about the applicability, threshold limits, and compliance requirements under Section 393(3) to ensure smooth financial and tax management under the proposed Income-tax Act 2025.

If you want to understand Section 194N of the Income Tax Act 1961 in detail, including its applicability, TDS rates, limits, exceptions, and practical implications; you can also refer to our detailed guide on the same.

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