To promote digital payments and restrict the flow of unaccounted cash, the Indian government has enforced Section 194N in the Income Tax Act. This provision compels banks, cooperative banks, and post offices to deduct Tax Deducted at Source (TDS) on substantial cash withdrawals made by account holders in a financial year. The move targets high-value transactions, aiming to foster habits of electronic modes of payment and bring greater transparency to India’s financial system.

This article covers in detail the meaning, applicability, threshold limits, and TDS rates under Section 194N, along with practical examples illustrating how TDS on cash withdrawals is calculated for different categories of taxpayers.

  • What Is Section 194N?
Section 194N requires the deduction of TDS by banks, cooperative banks, and post offices on cash withdrawals exceeding set thresholds, targeting both individuals and various types of business entities. The underlying objective is to discourage excessive cash-based dealings that could contribute to the circulation of unaccounted (black) money, thereby encouraging digital payment modes and increased transparency in financial transactions.

  • Persons Covered
This section covers:
•    Individuals
•    Companies
•    Hindu Undivided Families (HUF)
•    Firms or LLPs
•    AOPs and BOIs

  • Who Must Deduct TDS?
The obligation to deduct TDS under Section 194N lies with:
•    Banks (public and private)
•    Cooperative banks
•    Post offices

  • How to deposit TDS? 
Tax deducted under this provision is required to be deposited to the credit of the Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, the tax deducted during the month of March shall be deposited by 30th April of the next financial year. 

  • Filing of TDS statement 
The person responsible for the deduction of tax at source under this provision is required to file a statement of tax deducted at source in Form 26Q quarterly. 

  • TDS Certificate 
The deductor shall issue a TDS certificate to the assessee in Form No. 16A within 15 days from the due date of furnishing of the TDS statement.

  • Threshold Limits and TDS Rates
The rate and threshold of TDS depend on whether the individual has filed income tax returns (ITR) for the preceding three assessment years.


Amount Withdrawn

Taxpayer Filed
ITR (Last 3 Years)

Did Not File ITR
(Any of Last 3 Years)
Up to ₹ 20 Lakh
Nil

Nil
₹20 Lakhs–₹1 Crore

Nil

2%
Over ₹1 Crore

2%

5%

Exemption Limit for Cash Withdrawals made by Co-operative Societies under Section 194N
For co-operative societies, the TDS threshold is ₹3 crore per financial year, if the society has filed its ITR for any of the last three years.


Amount Withdrawn

Taxpayer Filed
ITR (Last 3 Years)

Did Not File ITR
(Any of Last 3 Years)

Up to ₹ 20 Lakhs

Nil

Nil

₹20 Lakhs–₹3 Crores

Nil

2%

Over ₹3 Crores

2%

5%

  • Applicability of TDS at Higher Rates


If the PAN of an individual account holder is not linked with Aadhaar, such PAN is treated as “Inoperative”. TDS under Section 194N shall be deducted at a higher rate of 20% under Section 206AA, when the PAN is:

•    Inoperative

•    Invalid
•    Not Available

Hence, it is crucial to ensure that the PAN–Aadhaar linkage is completed to avoid deduction at higher rates.

  • Applicability of TDS u/s 194N on Cash Withdrawals by NRIs


•    The provisions of Section 194N also apply to cash withdrawals made by Non-Resident Indians (NRIs).
•    The threshold limits for TDS applicability remain the same as for resident individuals.
•    However, the TDS rates differ for NRIs due to the impact of surcharge and Cess.


Cash Withdrawal Amount

Surcharge

Cess (on Tax + Surcharge)

Remarks

Up to ₹50 lakh

Not
applicable

4%

Normal
rate applies

₹50 lakh – ₹1 crore

10%

4%

Higher
effective rate

₹1 crore – ₹2 crore

15%

4%

Higher
effective rate

Above ₹2 crore

25%

4%

Maximum
rate applies

 Note: The surcharge and cess are levied in addition to the base TDS rate under Section 194N once the relevant thresholds are crossed.

Who Is Exempt?
Section 194N does not apply to the cash withdrawals made by:
  • 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
  • Specified trader or commission agents operating under the Agriculture Produce Market Committee (APMC) vide Notification No. 70/2019-Income Tax Dated 20th September, 2019.
  • An authorized dealer or agent/sub-agent of its franchise,
  • A RBI licensed Full-Fledge Money Changer (FFMC) or any agent from its franchise subject to conditions as per Notification No. 80/2019-Income Tax dated 15th October, 2019.
  • Any other person notified by the Government of India

  • TDS Calculation Method

•    TDS under Section 194N is calculated on the sum of all withdrawals from a particular bank or post office during a financial year, across all accounts (savings, current, etc.) held with that institution.
•    The withdrawal limit applies per bank/post office. Having accounts in multiple banks raises the cumulative threshold accordingly.
•    Only the excess over the threshold attracts TDS—for example, if the threshold is ₹1 crore and the total withdrawn in a year is ₹1.2 crore, TDS is on ₹20 lakhs only.


Example 1 – Multiple Withdrawals (ITR Non-Filer Case)

Suppose Mr. Ramesh did not file returns for any of the previous three years. His withdrawal pattern for FY 2024-25 from a single bank is:

Date Withdrawal (₹) Cumulative Total Rate Tax Deducted (₹)
10/04/2024 15 lakhs 15 lakhs – –
20/06/2024 25 lakhs 40 lakhs 2% (40L-20L)x2% = 40,000
01/08/2024 35 lakhs 75 lakhs 2% 35L x 2% = 70,000
03/09/2024 35 lakhs 1.10 crore 2%/5% (25Lx2%)+(10Lx5%)=1,00,000
15/10/2024
50 lakhs 1.6 crore 5% 50L x 5% = 2,50,000

Example 2 – Withdrawals from Savings and Current Accounts (ITR Filed Case)

Ms. Priya has both savings and current accounts with Bank A. She has filed her ITR for the previous assessment years. The following withdrawals were made during FY 2024–25:

Date Savings (₹) Current (₹)
05/06/2024 3,00,000 15,00,000
12/07/2024 2,00,000 18,00,000
30/07/2024 2,00,000 22,00,000
10/10/2024 1,00,000 40,00,000
01/12/2024 2,00,000 10,00,000
Total 10,00,000 1,05,00,000

Total Withdrawal: ₹1.15 crore (Savings + Current)

Threshold under Section 194N (ITR filed): ₹1 crore

Excess amount: ₹15 lakh

TDS @ 2% on ₹15 lakh = ₹30,000

Result: Since Ms. Priya has filed her ITR, no TDS applies up to ₹1 crore. TDS is deducted only on the excess ₹15 lakh.


Example 3 – Withdrawals from Different Banks (ITR Filed Case)

Ms. Kavita has filed her ITR for previous years and withdrew cash from multiple banks during FY 2024–25 as follows:

Bank Amount Withdrawn (₹)
Bank X 80,00,000
Bank Y 90,00,000
Bank Z 50,00,000
Total 2,20,00,000

Result:

• Bank X: Withdrawal is ₹80,00,000. This is less than the ₹1 crore threshold. Result: No TDS.

• Bank Y: Withdrawal is ₹90,00,000. This is less than the ₹1 crore threshold. Result: No TDS.

• Bank Z: Withdrawal is ₹50,00,000. This is less than the ₹1 crore threshold. Result: No TDS.

Final Conclusion: Since the cash withdrawal from each individual bank is below ₹1 crore, no bank will deduct TDS. The total TDS applicable to Ms. Kavita in this scenario is ₹0

TDS Credit and Refund under Section 194N
  • The TDS deducted on cash withdrawals under Section 194N is fully adjustable against your final income tax liability. It is not an additional tax but an advance payment reflected in your Form 26AS and AIS.
  • If your total income tax liability is lower than the TDS deducted, you can claim a refund while filing your Income Tax Return (ITR). The Income Tax Department will verify your return and credit the refund directly to your bank account.
  • Remember — filing your ITR on time is essential to claim TDS credit or refund under Section 194N.


  • Consequences for failure to deduct or deposit tax

Where any person responsible for deducting tax at source fails to deduct tax or after deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case, interest under section 201 will be applicable.


If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month shall be applicable, till such failure continues. Interest shall be calculated from the date when such tax was required to be deducted till the date such tax is actually deducted.


Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of the Central Government, interest at the rate of 1.5% per month or part thereof shall be applicable till such failure continues. The interest computation shall commence from the date on which the tax was deducted and end with the date when such tax was deposited to the government.


  • Penalty and Prosecution

Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions:


a) If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C;


b) If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B.


However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence.


  • Consequences for failure to furnish TDS Statement?

Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein the deductor is liable to pay fees at the rate of Rs. 200 per day during such default continues. However, such fees should not exceed the amount of TDS.


Moreover, he shall be liable for penalties under sections 271H of Rs. 10,000 which can be extended to Rs. 100,000, and 272A of Rs. 500 for every day during which failure continues.


  • Consequences for failure to issue TDS Certificates

Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a penalty under section 272A shall be applicable of Rs. 500 for every day during which failure.


  • “How to Check TDS Rates on Cash Withdrawals via e-Filing Portal”

1. Overview

The TDS on Cash Withdrawal u/s 194N service allows taxpayers to check the applicable TDS rates on cash withdrawals. It is available:

• Pre-login: For Individuals, HUFs, Companies, AOPs/BOIs, Partnership Firms/LLPs, and Local Authorities.

• Post-login: For registered TAN users (banks, co-operative banks, post offices) to view TDS rates using the bulk upload service.


2. Pre-requisites

To use this service, you need:

• Valid PAN/TAN

• Active mobile number

• Registered TAN user ID and password on the e-Filing portal


3. Step-by-Step Guide

3.1. View TDS rates applicable on Cash Withdrawal (Pre-Login)

Step 1: Go to the e-Filing portal homepage and click TDS on Cash Withdrawal.



 Step 2: Enter the PAN which you need to be verify 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. On the Verification page, enter OTP and click Continue.



Note:

•    The OTP is valid for 15 minutes and you have 3 attempts.
•    You can click "Resend OTP" to get a new one.
•    Successful validation will display your applicable TDS rate.
•    For ITR Filers: The message will be: "TDS is deductible at the rate of 2% if cash withdrawals exceed Rs. 1 crore."




If the person has not filed income tax returns for all or any year out of the three previous years, you will get this message: "TDS is deductible at the rate of 2% if cash withdrawals exceed Rs. 20 lakh and 5% if it exceeds Rs. 1 crore as the taxpayer has not complied with requirements of Section 194N of the Income Tax Act, 1961."


  • Frequently Asked Questions (FAQs)

Q1️. Is Section 194N applicable to NRIs?

Yes, Section 194N applies only to Non-Resident Indians (NRIs).


Q2️. Is TDS under Section 194N applicable to trusts or government bodies?

No, Central/State Governments, banks, and White Label ATM operators are exempt.

Yes,Trusts and private entities are covered.


Q3️. Is TDS deducted even if cash is withdrawn from multiple accounts?

Yes, the threshold is computed on the aggregate withdrawals from all accounts under the same PAN within that bank.


Q4️. Can I claim a refund for TDS deducted under Section 194N?

Yes. The deducted TDS can be claimed as a refund or adjusted against your tax liability while filing ITR.


Q5. If ITR is filed for only 1 of the past 3 years, will the TDS threshold benefit apply under Section 194N?

You will still be treated as an ITR filer & the ₹1 crore threshold shall apply.


KEY TAKEAWAYS

Section 194N of the Income Tax Act plays a vital role in India’s journey towards a cashless and transparent economy. While it imposes an additional compliance layer on heavy cash withdrawals, it ultimately aims to promote financial discipline, curb unaccounted transactions, and strengthen the digital payment framework.


Staying compliant with Section 194N not only helps avoid unnecessary deductions but also contributes to building a more accountable and transparent tax ecosystem.


At Tax-O-Smart, we simplify Section 194N compliance. File error-free ITRs, claim your TDS refunds smoothly, and stay compliant while managing your cash withdrawal TDS efficiently with expert guidance.


DISCLAIMER

The information contained in this document is prepared by R.J. Soni & Associates and TaxOSmart LLP (hereinafter referred to as RJSA) for information purposes only. It does not constitute any legal advice or tax advice. In no way, this document should be treated as a marketing material or efforts to solicit a client. While we have made every attempt to ensure that the information contained in this document is true, RJSA, its partners and/or any of its employees make no claims / guarantee about its accuracy, completeness, or up-to-date character, or warranty, express or implied, including the warranty of opinions expressed for a particular purpose, or assume any liability or responsibility for the accuracy, completeness, or usefulness of any information available from this document.