TDS on NSS Withdrawal in Income Tax Act 2025: Section 194EE

Introduction

The National Savings Scheme (NSS) was introduced to encourage long-term savings among taxpayers while offering tax deductions on eligible deposits. Over the years, withdrawals made from NSS accounts were subject to Tax Deducted at Source (TDS) under section 194EE of the Income Tax Act, 1961. Earlier, where the withdrawal amount exceeded the prescribed limit, the payer was required to deduct tax before releasing the amount to the account holder.

Under the comprehensive restructuring introduced through the Income Tax Act, 2025, the earlier provisions of section 194EE relating to TDS on National Savings Scheme (NSS) withdrawals have been consolidated within the revised TDS framework. The corresponding provisions relating to NSS withdrawals are proposed to be covered under Section 393(3), Table Serial No. 6 of the new law.

Recently, the Government introduced significant relief for individual taxpayers through CBDT Notification 27/2025. The notification clarified that eligible NSS withdrawals made by individuals will no longer attract TDS from 04 April 2025 onwards. At the same time, under the proposed Income Tax Act 2025, the earlier framework relating to National Savings Scheme (NSS) has been reorganized within a revised TDS structure.

The restructuring under the Income Tax Act, 2025 does not change the substantive nature of TDS applicability on NSS withdrawals. Instead, the Government has simplified and reorganized multiple TDS provisions into a consolidated tabular format for easier interpretation and compliance.

In this blog, we will discuss the meaning of section 194EE, applicability of TDS on NSS withdrawal, earlier provisions changes proposed under the Income Tax Act, 2025, applicability of section 194EE exemption, CBDT Notification No. 27/2025, and important compliance points taxpayers should know

What is TDS on NSS Withdrawal?

The National Savings Scheme is a government-backed savings scheme covered under Section 80CCA of the Income Tax Act. Deposits made under the scheme were eligible for tax deductions, while withdrawals were taxable at the time of receipt subject to applicable provisions.

To ensure proper tax collection on withdrawals, the Government introduced section 194EE, which dealt with TDS on NSS withdrawal. Earlier, the payer was required to deduct tax when making payment of amounts deposited under the NSS scheme if the withdrawal crossed the prescribed threshold.

The provisions applied specifically to withdrawals referred to under Section 80CCA(2)(a). Payments covered under section 194EE generally included amounts payable under the NSS withdrawal framework, including accumulated interest components.

Taxpayers often confuse NSS with NSC, but both are different savings instruments. The provisions relating to TDS on National Savings Scheme withdrawals applied only to NSS accounts and not to National Savings Certificates.

Earlier Provisions of Section 194EE

Before the latest exemption notification, section 194EE required deduction of TDS at the rate of 10% where the total withdrawal amount exceeded ₹2,500 during a financial year. The deduction was made at the time of payment to the depositor.

The objective behind introducing the provision was to ensure tax compliance on withdrawals made from deposits that had earlier received tax benefits under Section 80CCA

 Earlier TDS Provisions on NSS Withdrawals 

The provisions relating to NSS withdrawal TDS were applicable to banks, post offices, or other authorities responsible for making payment under the scheme. Entities responsible for deducting tax were also required to ensure timely TDS return filing to avoid penalties and reporting defaults.

In cases where the depositor failed to furnish PAN details, higher TDS provisions under Section 206AA could also become applicable under section 194EE.

Changes Under Income Tax Act 2025

The proposed Income Tax Act 2025 has reorganized various TDS provisions into a simplified tabular structure to improve readability and reduce interpretational issues.

Under the earlier framework, section 194EE governed TDS obligations relating to NSS withdrawals. Under the revised structure introduced in the proposed legislation, the corresponding provisions are intended to form part of the reorganized TDS framework.

This restructuring does not mean that section 194EE has been abolished completely. Instead, the provision has been shifted into a revised compliance structure under the proposed law.

Therefore, while referring to section 194EE, taxpayers should understand that:

• The provision existed under the Income Tax Act, 1961,
• The corresponding TDS framework is proposed to be covered within the reorganized structure under the Income Tax Act, 2025,
• And the relief from TDS has been separately notified through CBDT Notification No. 27/2025.

The restructuring under the Income Tax Act 2025 mainly aims to simplify tax law drafting and improve ease of understanding for taxpayers and professionals.

CBDT Notification No. 27/2025: Latest Update

A major relief relating to section 194EE was introduced through CBDT Notification 27/2025 dated 04 April 2025.

The notification was issued under the powers granted through Section 197A(1F) of the Income Tax Act. Through this notification, the Government specified that no TDS shall be deducted on eligible NSS withdrawals made by individual assessees.

As per the notification, the exemption applies to withdrawals covered under Section 80CCA(2)(a). This means that where an individual withdraws eligible amounts from an NSS account, the payer will not be required to deduct tax at source.

The section 194EE exemption became effective from 04 April 2025, being the date of publication of the notification in the Official Gazette. The latest notification has reduced compliance burden for deposit holders and eliminated unnecessary TDS deductions on old NSS accounts held by individuals.

 Timeline of Changes Under Section 194EE 

The changes relating to NSS withdrawal taxability and applicability are part of the Government’s broader effort to simplify tax compliance for deposit holders and senior citizens.

Cases Where TDS on NSS Withdrawal is Not Applicable

After the latest notification, TDS under section 194EE is not applicable in certain situations.

1. Eligible Individual Withdrawals After 04 April 2025

No TDS is required under section 194EE on eligible NSS withdrawals made by individual assessees covered under Section 80CCA(2)(a).

2. Withdrawal by Legal Heirs

Where payment is made to the legal heir of a deceased depositor, TDS provisions under section 194EE do not apply.

3. Withdrawal Below the Prescribed Limit

Under the earlier provisions of section 194EE, no TDS was required where the withdrawal amount did not exceed ₹2,500 during the financial year.

The exemption relating to section 80CCA withdrawal mainly benefits individual taxpayers holding old NSS deposits.

PAN Requirement for NSS Withdrawal

Although eligible withdrawals are now exempt from TDS under section 194EE, PAN compliance still remains important for taxpayers.

Under Section 206AA, higher TDS rates may become applicable in situations where PAN is not furnished wherever TDS provisions continue to apply under other sections.

Earlier, authorities processing NSS payment TDS were required to verify PAN details before releasing payments under the scheme. Therefore, taxpayers should continue maintaining updated PAN information for smooth tax compliance and reporting. Individuals facing PAN-related issues may also opt for professional assistance relating to PAN application and correction procedures.

Example of TDS on NSS Withdrawal

Example Before the Exemption

Suppose Mr. A withdrew ₹50,000 from his NSS account before 04 April 2025. Since the withdrawal exceeded ₹2,500, TDS was applicable at 10%. Accordingly, the payer deducted ₹5,000 as TDS before releasing the balance amount under section 194EE provisions.

Example After the Latest Notification

Suppose the same withdrawal is made by an eligible individual assessee on or after 04 April 2025.

In such a case, due to the relief provided through CBDT Notification 27/2025, no TDS will be deducted on the withdrawal amount. Where tax was deducted earlier, eligible taxpayers may claim refund while completing their Income Tax Return filing process.

This change in section 194EE has significantly reduced unnecessary tax deductions for individual NSS account holders.

 Legal Basis of TDS Exemption on NSS Withdrawal 

The legal relief relating to section 194EE has been introduced through notification powers available to the Central Government under Section 197A(1F) now broadly restructured into Section 393 of the new IncomeTax Act, 2025.

Need Professional Assistance?

With the recent changes relating to section 194EE, CBDT Notification No. 27/2025, and the revised TDS framework proposed under the Income Tax Act, 2025, many taxpayers may face confusion regarding NSS withdrawal reporting, TDS applicability, refund claims, and overall compliance requirements.

Ebizfiling offers professional Tax consultancy to help businesses and individuals with tax compliance, TDS-related queries, return filing assistance, and interpretation of changing income tax provisions.

Conclusion

Section 194EE earlier governed TDS deduction on withdrawals made from the National Savings Scheme under Section 80CCA. Under the previous framework, tax was deducted at source where the withdrawal amount exceeded the prescribed threshold.

However, the Government has now granted relief through CBDT Notification 27/2025 issued under Section 197A(1F). As a result, no TDS will apply on eligible NSS withdrawals made by individual assessees on or after 04 April 2025.

Further, under the proposed Income Tax Act 2025, the earlier framework relating to section 194EE has been reorganized within a revised TDS structure to simplify compliance and interpretation. Taxpayers should carefully verify the nature of withdrawal and applicable provisions before determining TDS applicability on NSS withdrawals.

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