The Government of India introduced Tax Deducted at Source (TDS) on cash withdrawals under Section 194N of the Income Tax Act, 1961, to discourage excessive cash transactions and promote digital payments. This provision impacts individuals, businesses, and entities making large withdrawals from their bank accounts.
Objectives of TDS on Cash Withdrawals
The key reasons for implementing TDS on large cash withdrawals are:
✅ Curbing Black Money – Preventing unaccounted cash transactions.
✅ Encouraging Digital Payments – Promoting non-cash transactions to enhance financial transparency.
✅ Regulating High-Value Transactions – Monitoring cash movements to improve tax compliance.
Applicability of Section 194N
This section applies to cash withdrawals exceeding certain limits from banks, co-operative banks, and post offices. It covers:
✔ Individuals
✔ Hindu Undivided Families (HUFs)
✔ Companies
✔ Partnership Firms & LLPs
✔ Associations of Persons (AOPs) & Body of Individuals (BOIs)
TDS Rates for Cash Withdrawals
The applicable TDS rates depend on whether the taxpayer has filed Income Tax Returns (ITRs) for the previous three years:
| Category | Cash Withdrawal Limit | TDS Rate |
|---|---|---|
| Regular taxpayers (ITR filed) | Above ₹1 crore in a financial year | 2% |
| Non-filers (No ITR for 3 years) | Above ₹20 lakh but up to ₹1 crore | 2% |
| Non-filers (No ITR for 3 years) | Above ₹1 crore | 5% |
Who Deducts TDS on Cash Withdrawals?
Banks, co-operative banks, and post offices are responsible for deducting TDS before disbursing the cash to the account holder.
Exemptions – Who is Not Affected by Section 194N?
Certain entities and transactions are exempted from TDS on cash withdrawals:
Entities Exempt from Section 194N
❌ Central/State Government departments
❌ Banks (Public/Private/Scheduled/Co-operative Banks)
❌ Post Offices
❌ White Label ATM Operators
❌ Agricultural Produce Market Committees (APMC) traders & commission agents
❌ Business Correspondents of Banks
❌ RBI-licensed Money Changers
How is TDS Calculated Under Section 194N?
Let’s take an example to understand TDS on cash withdrawals:
Case Study: Anjana’s Withdrawals
| Date | Amount Withdrawn (₹ in Lakhs) |
|---|---|
| 21 May 2024 | 40 |
| 20 Jun 2024 | 10 |
| 9 Oct 2024 | 25 |
| 29 Nov 2024 | 25 |
| 3 Mar 2025 | 10 |
🔹 Total withdrawn before March 3, 2025 = ₹1 crore (No TDS applicable)
🔹 On March 3, 2025, Anjana withdraws an additional ₹10 lakh, which exceeds the ₹1 crore threshold.
🔹 TDS @ 2% on ₹10 lakh = ₹20,000 is deducted.
TDS Compliance Requirements
✔ Deduction: TDS is deducted at the time of withdrawal.
✔ Deposit: The deducted TDS must be deposited with the government by the 7th of the following month.
✔ Filing: Banks must report TDS in Form 26QC quarterly.
Key Points to Remember
✅ TDS is applicable per bank account, not collectively across multiple banks.
✅ If you have multiple bank accounts, each bank considers its withdrawal limit separately.
Example: No TDS Even on ₹1.4 Crore Withdrawal
Mr. Deepak has withdrawn cash from three banks in FY 2023-24:
| Bank | Cash Withdrawn (₹ in Lakhs) |
|---|---|
| HDFC Bank | 70 |
| SBI Bank | 45 |
| Canara Bank | 25 |
💡 Total Withdrawn = ₹1.4 crore but no TDS is applicable because no single bank withdrawal exceeded ₹1 crore.
How to Claim a Refund of TDS Deducted Under Section 194N?
If TDS is deducted on your cash withdrawal, you can claim a refund under the following conditions:
✔ File an Income Tax Return (ITR) to adjust TDS against tax liability.
✔ If your total income is below the exemption limit, you can claim a full refund.
🔹 Note: Form 15G/15H & lower TDS certificate u/s 197 are NOT applicable for Section 194N.
Final Thoughts
TDS on large cash withdrawals under Section 194N is a strategic move to curb black money and encourage digital transactions. Businesses and individuals must be aware of the TDS implications and ensure compliance to avoid unnecessary tax deductions.
Need Expert Guidance?
At Power of Factorial Business Solutions, we provide end-to-end tax compliance services, helping you navigate complex TDS rules and optimize your tax liabilities.
📞 Contact Us: +91 8105021287
📧 Email: poweroffactorial024@gmail.com