INTRODUCTION: The purpose of introducing Section 194 N is To discourage cash transactions in the country and promote the digital economy, ‘Section 194N – TDS on cash withdrawals over and above Rs 1 crore’ has been introduced through the Finance Bill, 2019. But the same is amended by Finance bill 2020 which has reduced the limit to Rs . 20 lakhs upon satisfaction few conditions which will be discussed later.

Applicability of section 194 N:

  • TDS u/s 194N is applicable on cash withdrawals made by any person from bank , Co.op bank, post office .
  • Where Bank, co.op bank, post offices (payer of TDS) need to deduct TDS at certain percentage and need to pay the balance amount withdrawn to respective individuals
  • TDS is to be deducted only at the time of payment 
  • Rate of TDS : Generally its 2%

Threshold limit for deducting TDS :

  • No TDS if cash withdraw is upto 1 crore in a PY. If cash withdrawl is more than 1 crore then TDS @ 2% only on amount in excess of 1 crore.

Example: Miss Padma has withdrawn Rs 1,20,00,000 from ICICI bank then ICICI bank need to deduct TDS @ 2% on Rs 20,00,000 which is in excess of Rs 1,00,00,000 . Therefore TDS to be deducted is 2 %( Rs 20, 00,000) = Rs 40,000

If payee has not filed return for all 3 preceding PY’s for which due date u/s 139(1) already expired before starting of current PY then TDS shall be deducted as under :

  • 2% on cash withdrawals in excess of Rs 20 lakhs upto  Rs 1 crore and
  • 5% on cash withdrawals in excess of Rs 1 crore

Read more at: View TDS on Cash Withdrawal

Exceptions to section 194 N:

No TDS if cash withdrawal by:

  • Government (SG/CG)
  • Banks, Co-op Bank , Post office and their business correspondent,
  • White label ATM operator of banks or co-op bank
  • Cash Replenishment Agencies
  • Registered commission agent / trade operating under Agriculture Produce Market Committee (APMC) for making payment to farmers
  • Authorised dealer, Full Fledged Money changer (FFMC) , their franchise agent and sub agent in respect of withdrawl made for purchasing foreign currency from NR/ foreign tourist visiting India or resident Indians on their return to India or for disbursement of inward remittances to recipient beneficiaries in India in cash under Money Transfer Service scheme

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According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds : 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. 

Read more at: CBDT CLARIFICATION ON APPLICABILITY OF SECTION 194N W.E.F. 01.09.2019