Section 194N of the Income Tax Act of India was introduced to reduce cash transactions and encourage digital payments. As part of this initiative, the government has mandated that banks, cooperative banks, and post offices deduct Tax Deducted at Source (TDS) on large cash withdrawals made by individuals. The aim is to curb unaccounted cash transactions and promote a cashless economy.
This article provides a detailed explanation of Section 194N, explaining when TDS is applicable, how it is calculated, who is exempt from it, and how you can claim a tax refund of the deducted TDS.
What is Section 194N?
Section 194N of the Income Tax Act specifically targets individuals or entities who withdraw large amounts of cash during a financial year. The key feature of this section is that it mandates the deduction of TDS on cash withdrawals that exceed ₹1 crore from the bank or financial institution in a given financial year.
Key Points:
- Threshold Limit: The TDS rules apply to cash withdrawals exceeding ₹1 crore in a financial year. This includes the total withdrawals from all branches of the same bank.
- TDS Deduction: When the withdrawal exceeds ₹1 crore, TDS is deducted on the amount over and above ₹1 crore.
Exemptions from TDS Deduction under Section 194N
TDS on cash withdrawals under Section 194N does not apply to withdrawals made by the following individuals or entities:
- Central or state government
- Private or public sector banks
- Cooperative banks
- Post offices
- Business correspondents of any bank
- White label ATM operators of any bank
- Central government-specified commission agents or traders operating under the Agriculture Produce Market Committee (APMC) when making payments to farmers for agricultural produce
- Authorized dealers and their franchise agents, sub-agents, and Full-Fledged Money Changers (FFMC) licensed by the RBI and their franchise agents
- Any other person notified by the Government in consultation with the RBI
These groups are exempt from the TDS requirement on large cash withdrawals.
Purpose of Section 194N
The government introduced Section 194N to achieve multiple goals, primarily:
- Reducing cash transactions: By imposing TDS on large withdrawals, the government aims to reduce cash-based transactions, which are harder to track and tax.
- Promoting digital transactions: This aligns with the Digital India initiative, encouraging individuals to move towards cashless transactions, thereby increasing transparency.
- Ensuring tax compliance: By making large cash withdrawals subject to TDS, the government ensures that individuals or businesses are paying their taxes honestly.
How is TDS Deducted Under Section 194N?
When is TDS Deducted?
TDS will be deducted when your total cash withdrawal exceeds ₹1 crore in a financial year (April to March). However, if you have multiple accounts in different banks, the ₹1 crore limit applies separately to each bank.
- Example 1: If you withdraw ₹50 lakh from Bank A and ₹80 lakh from Bank B, there will be no TDS deduction since the withdrawal from each bank is under ₹1 crore. However, if you withdraw ₹1 crore or more from any one bank, TDS will apply.
- Example 2: If you withdraw ₹1.5 crore from one bank, TDS will be deducted on the excess ₹50 lakh.
What is the TDS Rate Under Section 194N?
The rate of TDS depends on whether you have filed your Income Tax Return (ITR) in the past three years. Section 194N requires TDS (Tax Deducted at Source) on cash withdrawals that exceed ₹1 crore in a financial year. Here’s how the rates work:
| Withdrawal in a F.Y. | TDS Rate (if ITR filed for last 3 years) | TDS Rate (if ITR not filed for last 3 years) |
| Up to ₹20 lakhs | No tax is deducted (TDS). | No tax is deducted (TDS). |
| ₹20 lakhs – ₹1 crore | No tax is deducted (TDS). | Tax is deducted (TDS) at 2% on the amount exceeding ₹20 lakh. |
| Above ₹1 crore | Tax is deducted (TDS) at 2% on the excess amount above ₹1 crore. | Tax is deducted (TDS) at 5% on the amount exceeding ₹1 crore. |
If you have accounts in three different banks, you can withdraw ₹1 crore from each bank (totaling ₹3 crore) without any TDS being deducted.
For co-operative societies the threshold limit for annual cash withdrawal has been increased to 3 Crore rupees in Budget 2023.
Under Section 194N, banks must deduct TDS (Tax Deducted at Source) when cash withdrawals exceed ₹1 crore in a financial year.
Here’s how it works:
- When to Deduct: TDS is deducted once the total cash withdrawn by a person goes over ₹1 crore within that financial year.
- Amount of TDS: TDS is only applied to the amount that exceeds ₹1 crore.
Who is Responsible for Deducting TDS Under Section 194N?
The responsibility for deducting TDS falls on the person (payer) making the cash payment. The following entities are required to deduct TDS:
- Banking companies (both public and private)
- Cooperative societies involved in banking
- Post offices
Can You Claim a Refund for TDS Deducted Under Section 194N?
Yes, you can claim a tax refund of the TDS deducted under Section 194N. To claim a tax refund, you need to file your Income Tax Return (ITR) and show that the tax has been deducted but is not due based on your total income. The refund is issued after the Income Tax Department verifies your return.
How to Claim a Refund
- Eligibility for Refund: If your income is below the basic exemption limit, you can claim a tax refund for the TDS deducted.
- Filing ITR: To get the refund, you must file your Income Tax Return (ITR) for the relevant financial year.
Key Notes:
- If you do not file your ITR, you may face additional tax liabilities.
- If you have not filed your ITR for the last three years, the TDS rate on cash withdrawals exceeding ₹20 lakh will be applied.
Example-1: TDS Calculation on Cash Withdrawals from Savings and Current Accounts
Mr. Kumar has both a savings and a current account with ABC bank. His cash withdrawals during the financial year 2023-24 are as follows:
| Date of Cash Withdrawal | Withdrawal from Savings Account (₹) | Withdrawal from Current Account (₹) |
| 02-07-2023 | 4,00,000 | 5,00,000 |
| 16-08-2023 | 2,00,000 | 25,00,000 |
| 28-09-2023 | 1,00,000 | 10,00,000 |
| 02-11-2023 | 50,000 | 50,00,000 |
| 02-12-2023 | 2,50,000 | 10,00,000 |
Total Withdrawals:
- Savings Account: ₹10,00,000
- Current Account: ₹1,00,00,000
TDS Calculation (assuming Mr Kumar has filed his Income tax return):
The total cash withdrawn is ₹1,10,00,000 (₹10,00,000 from savings + ₹1,00,00,000 from current). Since the total exceeds ₹1 crore, TDS is calculated at 2% on the amount above ₹1 crore.
TDS = (₹1,10,00,000 – ₹1,00,00,000) * 2% = ₹20,000.
Note: If Mr. Kumar has multiple accounts in different banks, the tax deduction limit will be based on individual bank accounts.
Example 2: TDS Calculation for Non-Filers of Income Tax Returns
Mr. Chandra made the following withdrawals during the financial year 2023-24. He has not filed his Income Tax Returns (ITR) for the financial years 2020-21, 2021-22, and 2022-23. The due dates for filing returns for these years have already passed.
| Date | Amount of Withdrawal (Rs) | Total Withdrawn by this Date (Rs) | TDS Rate (due to non-filing of ITR) | Calculation | Tax Deducted (Rs) |
| 02/05/2023 | 14 lakh | 14 lakh | – | – | – |
| 22/08/2023 | 26 lakh | 40 lakh | 2% | (40 lakh – 20 lakh) x 2% | 40,000 |
| 24/09/2023 | 35 lakh | 75 lakh | 2% | 35 lakh x 2% | 70,000 |
| 03/10/2023 | 35 lakh | 1.10 crore | 2% and 5% | (25 lakh x 2%) + (10 lakh x 5%) | 1,00,000 |
| 19/11/2023 | 50 lakh | 1.6 crore | 5% | 50 lakh x 5% | 2,50,000 |
Under section 194N, all withdrawals from accounts with the same bank are added together when determining the total withdrawal limit for tax deduction purposes.
Example 3: TDS on Withdrawals from Multiple Banks
Mr. Kau made cash withdrawals from the following banks during the financial year 2023-24:
| Bank | Total Cash Withdrawn (Rs) |
| XYZ Bank | ₹80 lakh |
| ABC Bank | ₹60 lakh |
| PQR Bank | ₹20 lakh |
In this case, no bank needs to deduct TDS under Section 194N because the total withdrawals from each bank are below the ₹1 crore limit.
However, if Mr. Kau withdraws more than ₹1 crore from ABC Bank, then ABC Bank will have to deduct TDS at 2% or 5%, depending on the situation.
Example 4: TDS Calculation on Withdrawals from Multiple Branches of the Same Bank
Mr. Kumar withdrew the following amounts:
- ₹60 lakh from XYZ Bank Branch A
- ₹20 lakh from XYZ Bank Branch B
- ₹40 lakh from XYZ Bank Branch C
- ₹10 lakh from PQR Bank Branch D
Total Withdrawn:
- ₹60 lakh + ₹20 lakh + ₹40 lakh = ₹120 lakh from XYZ Bank
- ₹10 lakh from PQR Bank
Since Mr. Kumar withdrew ₹10 lakh from PQR Bank, which is below the ₹1 crore limit, it is not subject to TDS.
However, TDS will be deducted by XYZ Bank on the amount exceeding ₹1 crore. XYZ Bank’s total withdrawal is ₹120 lakh, so the excess over ₹1 crore is ₹20 lakh (₹120 lakh – ₹100 lakh). Therefore, XYZ Bank will deduct TDS on ₹20 lakh.
Depending on whether Mr. Kumar has filed his ITR or not, the TDS rate could be 2% or 5% under Section 194N.
Here’s a breakdown of Section 194N in table format for clarity:
| Aspect | Details |
| Section | Section 194N |
| Purpose | To reduce cash transactions, promote digital payments, and ensure tax compliance by deducting TDS on large cash withdrawals. |
| Threshold Limit | TDS applies on cash withdrawals exceeding ₹1 crore in a financial year (April – March). |
| Who is Affected? | – Individuals, firms, companies, etc., making large cash withdrawals from banks or post offices. |
| Who is Exempt? | – Government (Central & State)- Banks (public/private/cooperative)- Post Offices- White-Label ATM Operators- APMC traders- Business Correspondents of Banks |
| TDS Rates (For ITR Filers) | – No TDS up to ₹1 crore- 2% TDS on amounts above ₹1 crore |
| TDS Rates (For Non-ITR Filers) | – No TDS up to ₹20 lakh- 2% TDS on cash withdrawals above ₹20 lakh- 5% TDS on cash withdrawals above ₹1 crore |
| TDS Deduction on Multiple Banks | TDS applies separately for withdrawals from each bank. If total withdrawals from a bank exceed ₹1 crore, TDS applies only to the excess amount. |
| Refund Process | – File Income Tax Return (ITR) to claim a refund.- Refund is available if total income is below the basic exemption limit. |
| Rate Calculation in Case of Multiple Withdrawals | If total withdrawal across banks exceeds ₹1 crore, TDS will apply to excess amounts. |
Frequently Asked Questions (FAQs)
What is TDS on cash withdrawal under Section 194N?
Section 194N of the Income Tax Act relates to the Tax Deducted at Source (TDS) on cash withdrawals. This section requires banks or financial institutions to deduct TDS on large cash withdrawals made by an individual during the financial year. Here’s how it works:
- If a person withdraws cash in a particular financial year (FY) that exceeds ₹20 lakh, and they have not filed Income Tax Returns (ITR) for the last three financial years, TDS will be deducted.
- If the person has filed ITRs for at least one of the last three financial years, the limit is raised to ₹1 crore for TDS to be deducted.
The rate of TDS is generally 2% on the excess amount withdrawn beyond these limits.
This rule encourages people to file their taxes regularly and ensures that large cash withdrawals are closely monitored.
From when is TDS on cash withdrawal under Section 194N of the Act applicable?
TDS on cash withdrawal under Section 194N of the Act became applicable starting 1st September 2019, which is for the financial year 2019-2020.
At what rate is TDS on cash withdrawal under Section 194N deducted?
The TDS rate on cash withdrawals under Section 194N depends on whether the person has filed their income tax returns (ITR) for the previous years:
If the person has filed ITR for any or all of the last three assessment years (AYs), the TDS will be deducted at 2% on cash withdrawals exceeding ₹1 crore.
If the person has not filed ITR for any of the last three assessment years, TDS will be deducted at:
- 2% on cash withdrawals above ₹20 lakh
- 5% on withdrawals exceeding ₹1 crore.
Who deducts TDS on cash withdrawal under Section 194N of the Act?
TDS on cash withdrawals is deducted by banks (whether private, public, or co-operative) and post offices. The tax is deducted when a person withdraws cash in excess of ₹20 lakh or ₹1 crore (depending on the situation) from their account with these banks or post offices.
Is TDS applicable for cash withdrawals from the post office?
Yes, TDS will be deducted if cash withdrawals from the post office exceed ₹1 crore in a financial year.
Can I claim a refund for TDS deducted under Section 194N?
Yes, you can claim a refund of the TDS deducted on cash withdrawals when filing your Income Tax Return (ITR).
If ABC withdraws ₹1 crore in cash, will TDS under Section 194N be applied?
No, TDS will not be deducted since the total amount withdrawn is exactly ₹1 crore. However, if ABC has not filed ITR in the past three years, TDS at 2% will be deducted.
I withdrew ₹98 lakh on September 2, 2023, and ₹5 lakh on October 10, 2023, during FY 2023-2024, and I have filed ITR for the last three years. Will TDS under Section 194N be deducted? If so, on what amount?
Yes, TDS will be deducted because the total cash withdrawn is ₹1.03 crore, which exceeds ₹1 crore. TDS will be deducted at 2% on the excess amount of ₹3 lakh (i.e., ₹1.03 crore – ₹1 crore).
