Cash transactions continue to be closely monitored by the Indian government, and Section 194N of the Income Tax Act plays a major role in regulating high-value cash withdrawals. If you withdraw large sums of money from a bank, co-operative bank, or post office, TDS may be deducted from your withdrawal amount.

Here , we will explain the latest limits, rates, rules, exemptions, and practical examples of TDS on cash withdrawals under Section 194N.

What Is Section 194N?

Section 194N mandates banks, co-operative banks, and post offices to deduct TDS on cash withdrawals exceeding a prescribed limit during a financial year.

This was introduced to discourage large cash transactions and promote digital payments.

Cash Withdrawal Limits (New) Under Section 194N:

There are two categories of people:

1. ITR Filers (Those who filed ITR for previous 3 assessment years)

No TDS up to ₹1 crore withdrawal in a financial year.

2% TDS on the amount exceeding ₹1 crore.

2. Non-ITR Filers (Those who DID NOT file ITR for previous 3 assessment years)

Here, the limits are stricter:

No TDS up to ₹20 lakh

2% TDS on withdrawals ₹20 lakh to ₹1 crore

5% TDS on withdrawals exceeding ₹1 crore

Who Must Deduct TDS?

TDS is deducted by:

Banks (public & private sector)

Co-operative banks

Post offices

It applies to all types of account holders—Individual, HUF, Firm, Company, AOP, BOI, Trusts, etc.

Who Is Exempt From TDS u/s 194N?

The following are NOT subject to TDS on withdrawals:

Central or State Government

Banks, Co-operative Banks, and Post Offices withdrawing cash from their own accounts

Business Correspondents of banks

White Label ATM Operators

Certain agricultural markets/mandis and notified entities

How Withdrawal Amount Is Calculated?

The limit applies per bank, not across all banks combined.

Withdrawals from all accounts (savings and current) within the same bank are added together.

Example:

If you have accounts in two different banks, you get the applicable limit in each bank separately.

Examples to Understand TDS Deduction:

Example 1: ITR Filer

Mr. A withdrew ₹1.50 crore from Bank X in FY 2024-25.

TDS applies on: ₹1.50 crore − ₹1 crore = ₹50 lakh

TDS = 2% of ₹50 lakh = ₹1,00,000

Example 2: Non-ITR Filer

Mr. B did not file ITR for the last 3 years and withdrew ₹1.20 crore from Bank Y.

Breakdown:

₹20 lakh – no TDS

Next ₹80 lakh (₹20 lakh to ₹1 crore) → 2% = ₹1,60,000

Next ₹20 lakh (above ₹1 crore) → 5% = ₹1,00,000

Total TDS = ₹2,60,000

Is This Tax Recoverable?

Yes.

TDS under Section 194N is not a final tax
It appears in Form 26AS and can be:

Adjusted against your tax liability, or

Claimed as refund while filing ITR.

How to Avoid Unnecessary TDS on Withdrawals?

✔ File ITR regularly (becoming an ITR-filer raises your limit from ₹20 lakh to ₹1 crore).

✔ Use digital transactions instead of high-value cash withdrawals.

✔ Plan withdrawals in advance to avoid crossing the threshold.

✔ Track your total yearly withdrawal from each bank.

The purpose of Section 194N is to reduce large cash transactions and encourage digital banking.

Understanding these limits can help individuals and businesses plan cash flow efficiently and avoid unexpected TDS deductions.

If you are withdrawing cash frequently or above ₹20 lakh/₹1 crore, always evaluate whether you fall under the ITR filer or non-filer category, as this directly affects the rate of TDS applicable to you.

Team- Intellex Strategic Consulting Private Limited

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