Section 194N: TDS on Cash Withdrawal Rules & Limits 

Introduction

Section 194N was introduced under the Finance Act, 2019 and became effective from 1st September 2019. The purpose of this provision was to reduce large cash transactions and encourage digital payments across the economy.

Under this provision, banks, co-operative banks, and post offices are required to deduct TDS when cash withdrawals exceed the prescribed limit during a financial year. Its applicability mainly depends on the total cash withdrawn and whether the taxpayer has filed Income Tax Returns in previous years.

Further, under the proposed Income Tax Act 2025, the provisions of existing Section 194N are proposed to be covered under Section 393(3) [Table III, Serial No. 5]. While the section number may change, the overall purpose and applicability of the provisions are expected to remain largely the same.

In this article, we will understand the rules relating to TDS on cash withdrawals, including applicability, threshold limits, TDS rates, exemptions, and other important provisions.

What is Section 194N of Income Tax Act?

Cash withdrawals made from banks, co-operative banks, and post offices may attract TDS if the withdrawal amount exceeds the prescribed limit during a financial year.

This provision was introduced to reduce heavy cash transactions and promote greater transparency in financial dealings. It applies to individuals, firms, companies, and other taxpayers withdrawing cash beyond the specified threshold.

Further, under the proposed Income Tax Act 2025, the existing provisions are proposed to be covered under Section 393(3).

Applicability of Section 194N

The applicability of Section 194N depends on whether the taxpayer has filed Income Tax Returns for the last 3 assessment years.

For taxpayers who have filed Income Tax Returns

If the taxpayer has filed Income Tax Returns for the last 3 assessment years, TDS will be deducted at 2% on cash withdrawals exceeding ₹1 Crore during a financial year.

For taxpayers who have not filed Income Tax Returns

If the taxpayer has not filed Income Tax Returns for the last 3 assessment years, TDS will be deducted at:

• 2% on cash withdrawals exceeding ₹20 Lakhs and up to ₹1 Crore.
• 5% on cash withdrawals exceeding ₹1 Crore.

Special Limit for Co-operative Societies

In the case of co-operative societies engaged in banking business, the threshold limit for TDS deduction is ₹3 Crores instead of ₹1 Crore. Taxpayers should ensure timely Income Tax Return filing to avoid higher TDS deductions.

How is Threshold Limit Calculated Under Section 194N?

The threshold limit is calculated based on the aggregate amount of cash withdrawn during a financial year.

• If a taxpayer maintains multiple accounts in the same bank, total cash withdrawals from all accounts are considered together for calculating the threshold limit.
• However, if the taxpayer withdraws cash from different banks, the threshold limit is calculated separately for each bank.

Therefore, taxpayers should regularly monitor total cash withdrawals to avoid unexpected TDS deductions.

Who is Liable to Deduct TDS?

The following entities are responsible for deducting TDS on cash withdrawals:

• Banking companies
• Co-operative banks
• Post offices

The provisions are applicable to withdrawals made by:

• Individuals
• HUFs
• Partnership Firms
• Companies
• Trusts
• AOPs/BOIs
• Other taxpayers

TDS under Section 194N is deducted at the time of payment of cash withdrawal by the bank, co-operative bank, or post office.

When is TDS Not Applicable?

TDS under Section 194N is not deducted in certain cases. For example, if the total cash withdrawal during the financial year stays within the prescribed limit, no TDS will apply.

The provisions also do not apply to cash withdrawals made by certain specified entities, such as:

• Government
• Banks and co-operative banks
• Post office savings banks
• Bank business correspondents
• White Label ATM Operators
• Other persons notified by the Central Government

Apart from this, the Government may also notify additional entities for exemption from time to time.

How can Ebizfiling Help?

At Ebizfiling, we help businesses and taxpayers understand and comply with TDS provisions related to cash withdrawals. Our team assists in identifying whether TDS is applicable based on withdrawal limits and Income Tax Return filing, helps calculate the correct TDS amount, and provides guidance on compliance requirements under the Income Tax Act.

We also support businesses with PAN application, TDS return filing, tax advisory, and overall accounting and compliance management to help avoid penalties and notices. With expert assistance and timely support, Ebizfiling makes tax compliance simpler and stress-free for businesses and individuals. Connect with ustoday.

Conclusion

Section 194N was introduced to monitor large cash withdrawals and encourage digital transactions in India. The provisions apply when cash withdrawals exceed the prescribed limit during a financial year.

The applicability of TDS mainly depends on the taxpayer’s Income Tax Return filing status. Banks, co-operative banks, and post offices are responsible for deducting TDS once the specified threshold limit is crossed.

Further, under the proposed Income Tax Act 2025, the provisions relating to TDS on cash withdrawals are proposed to be covered under Section 393(3) [Table III, Serial No. 5]. Therefore, taxpayers should stay updated with the latest provisions to ensure proper compliance with TDS rules relating to cash withdrawals.

For detailed information on the new changes… as per Income Tax Act 2025, read our blog on Section 393(3) which includes applicability, TDS rates, and compliance.

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