Section 194N: Cash Withdrawal TDS The provisions of Section 194N are triggered when cash withdrawals exceeding Rs 1 crore are made from a bank account, co-operative society, or post office during a financial year. This applies to all sums of money or aggregate sums withdrawn from a specific bank within the financial year. The section encompasses individual taxpayers, Hindu Undivided Families (HUFs), companies, partnership firms, LLPs, as well as Associations of Person (AOPs) or Bodies of Individuals (BOIs).
However, exemptions from this section apply when the payment is made to the Government, any bank (private or public sector), a co-operative bank, a post-office, business correspondents of a banking company, white label ATM operators, specified traders or commission agents operating under the Agriculture Produce Market Committee (APMC), authorized dealers or agents, RBI licensed Full-Fledge Money Changers (FFMC), and other entities notified by the Government of India.
The Rs 1 crore threshold limit is calculated per bank or post office account, rather than on the taxpayer’s account. For instance, if an individual has three bank accounts with three different banks, they can withdraw up to Rs 3 crore without incurring TDS. The TDS under Section 194N is only applicable to cash withdrawals made by the taxpayer from the bank account(s) maintained by the said taxpayer. Even in the case of issuing a bearer cheque to a third party, payments exceeding Rs 1 crore in a financial year are not allowed as business expenditure under section 40(A)(3) of the Income Tax Act.
The implementation of Section 194N aims to discourage cash transactions and promote the digital economy, with the responsibility of deducting TDS resting on the payer. Any cash payment exceeding Rs 1 crore in a financial year will attract TDS, and if the sum of money withdrawn exceeds Rs 1 crore, TDS is applicable on the excess amount. For example, if an individual withdraws Rs 99 lakh in aggregate in a financial year and then withdraws an additional Rs 1,50,000, the TDS liability is only on the excess amount of Rs 50,000.
In conclusion, Section 194N stands as a measure to curb cash transactions in the country and foster the adoption of digital payment methods.
Rate of TDS under Section 194N
The rate of TDS depends on the return filing status of the individual withdrawing the money. Summarised as follows
| Amount of cash withdrawal | Person – not filed an income tax return for three years | Other persons |
| Upto Rs. 20 Lakhs | Nil | Nil |
| Rs. 20 Lakhs to Rs.1 crore | 2% | Nil |
| More than Rs.1 crore | 5% | 2% |
The payer will have to deduct TDS on the cash payments/withdrawals of more than Rs 1 crore in a financial year under Section 194N.
Thus, in the above example, TDS would be on Rs 50,000 at 2%, i.e. Rs 1,000.
If the individual receiving the money has not filed an income tax return for three years immediately preceding the year, the tax deduction limit is reduced to Rs 20 lakh.
The TDS will be deducted at:
-2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore
-5% for withdrawal exceeding Rs 1 crore
Points to remember
- The recipient of cash cannot furnish Form No.15G/15H to the bank and cannot apply for a lower deduction certificate u/s 197.
- While calculating three years immediately preceding the years, if the date of return u/s 139(1) has not expired, then that assessment year is not to be considered.
Illustrations
Example 1
Mr. Raj has made the following withdrawals during the financial year 2020-21. He has not filed his ITR for the financial year-2017-18, 2018- 19, 2019-20 and that the due date for filing of return for these years has expired.
| Date | Amount of Withdrawal (Rs) | Aggregate amount withdrawn up to the given date (Rs) | Rate | Computation | Tax to be deducted (Rs) |
| 01/04/2020 | 14 lakh | 14 lakh | – | – | – |
| 21/07/2020 | 26 lakh | 40 lakh | 2% | (40 lakh -20 lakhs) x 2% | 40,000 |
| 25/08/2020 | 35 lakh | 75 lakh | 2% | 35 lakh x 2% | 70,000 |
| 04/09/2020 | 35 lakh | 1.10 crore | 2% and 5% | (25 lakh x 2%) + (10 lakh x 5%) | 1,00,000 |
| 18/10/2020 | 50 lakh | 1.6 crore | 5% | 50 lakh x 5% | 2,50,000 |
- Under section 194N, for computing the withdrawal limit – withdrawals made from all the accounts maintained with the same bank to be considered cumulatively.
Example 2
Mr. Raj maintains a savings and current account with XYZ bank. His transactions during the FY 2020-21 are as follows:
| Date of cash withdrawn | Withdrawal from the saving account (in Rs) | Withdrawal from the current account (in Rs) |
|---|---|---|
| 01-06-2020 | 5,00,000 | 15,00,000 |
| 15-07-2020 | 1,00,000 | 15,00,000 |
| 30-07-2020 | 2,00,000 | 20,00,000 |
| 01-10-2020 | 50,000 | 40,00,000 |
| 01-11-2020 | 1,50,000 | 10,00,000 |
| Total | 10,00,000 | 1,00,00,000 |
| Tax to be deducted | Rs 20,000 (10,00,000+1,00,00,000-1,00,00,000)*2% | |
- If there are multiple bank accounts among different banks, tax deduction limit shall be based on the individual banks.
Example 3
Mr. Raj has withdrawn cash from the following banks during the financial year–
| Bank | Total cash withdrawn during the FY 2020-21 (in Rs) |
| Axis Bank | ₹60 lakh |
| SBI Bank | ₹50 lakh |
| ICICI Bank | ₹10 lakh |
In the above example, No bank is required to deduct TDS under Section 194N as the limit of Rs 1 crore is not exhausted in any of the banks.
However, if Mr Raj withdraws cash of more than Rs 1 crore from SBI bank, then SBI bank is liable to deduct TDS at 2% or 5%, as the case may be.
TDS on Cash Withdrawal u/s 194N FAQs
1. What is TDS on cash withdrawal u/s Section 194N about?
According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds :
- ₹ 20 lakh (if no ITR has been filed for all the three previous AYs), or
- ₹ 1 crore (if ITRs have been filed for all or any one of three previous AYs).
2. Who deducts TDS on cash withdrawal u/s 194N of the Act?
TDS is deducted by banks (private, public, and co-operative) or post offices. The tax is deducted when making any cash payment to any person in excess of ₹ 20 lakh or ₹ 1 crore (as the case may be) from his/her account maintained with such banks or post offices.
3. To whom is TDS on cash withdrawal u/s 194N of the Act not applicable?
TDS on cash withdrawal u/s 194N will not apply to withdrawals made by the following persons:
- Central or state government
- Private or public sector bank
- Any cooperative bank
- Post office
- Business correspondent of any bank
- White label ATM operator of any bank
- Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of purchase of agriculture produce
- Authorized dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents
- Any other person notified by the Government in consultation with RBI.
4. From when is TDS on cash withdrawal u/s 194N of the Act applicable?
TDS on cash withdrawal u/s 194N of the Act is applicable starting 1st September 2019, or FY 2019-2020.
5. At what rate is TDS on cash withdrawal u/s 194N deducted?
TDS will be deducted at a rate of 2% on cash withdrawals in excess of ₹ 1 crore if the person withdrawing the cash has filed income tax return for any or all three previous AYs.
TDS will be deducted at 2% on cash withdrawals of more than ₹ 20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.
6. What is the TDS limit for cash withdrawal?
TDS will be deducted at 2% on cash withdrawals of more than ₹ 20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.
7. What is the TDS rate for 194N?
2%
TDS Rate under Section 194N
Section 194N requires the payer to subtract TDS at a rate of 2% on cash payments/withdrawals of more than Rs 1 crore in a fiscal year. Thus, in the preceding case, TDS will be levied on Rs 50,000 at a rate of 2%, i.e. Rs 1,000.
8. How to check TDS on cash withdrawal?
Step-by-Step Guide. Step 1: Go to the e-Filing portal homepage and click TDS on Cash Withdrawal. Step 2: Enter your PAN and a valid Mobile Number, select the Declaration checkbox and click Continue. Step 3: You will receive a 6-digit OTP on the mobile number entered in Step 2.
9. Can I withdraw 50 lakhs from a bank?
Large cash transactions made by individuals are reported by banks to the income tax department. Jain says, “Banks are required to report annual cash withdrawals in excess of Rs 10 lakh (from savings account) and Rs 50 lakh (from current accounts) to the income tax authorities along with the PAN of the holder.
10. Can I withdraw 10 lakh cash from a bank?
Listen to This Article. Cash deposits or withdrawals exceeding Rs 10 lakh (1 million) in a year in a savings account (except current accounts and fixed deposits) require reporting to the Income Tax department. Banks and post offices are responsible for reporting such
11. What is the rule for TDS?
Employers must deduct TDS from the salary of those employees whose income exceeds the maximum exempt limit. Employees can submit proof of tax-saving investments and expenses to reduce the TDS amount of the employer. Banks will deduct TDS at 10% from the interest payments on fixed deposits.
12. TDS under section 206AB
If the person provides the PAN, but has not filed the return for the last 3 years then the above rate shall apply. Just to save from this if he doesn’t provide the PAN then tax shall be deducted at 20% or much higher rate as per section 206AA.
13. What are the new rules for cash withdrawal from bank?
As per the updated regulations from the RBI (Reserve Bank of India), with effect from 1st January 2022, users of most banks can withdraw cash from ATM five times per month. These five transactions are inclusive of both financial and non-financial (balance inquiry, mini statements etc.)