Section 194N of the Income Tax Act mandates Tax Deducted at Source (TDS) on cash withdrawals exceeding specified thresholds within a financial year. Introduced to promote digital transactions and curb large cash dealings, this provision applies to withdrawals from banks (private, public, cooperative) and post offices.
TDS Thresholds and Rates for FY 2025–26
The applicability of TDS under Section 194N depends on the individual’s Income Tax Return (ITR) filing status:
For Individuals Who Have Filed ITRs in Any of the Last 3 Assessment Years:
- Threshold: ₹1 crore
- TDS Rate: 2% on the amount exceeding ₹1 crore
For Individuals Who Have Not Filed ITRs in All of the Last 3 Assessment Years:
- Threshold 1: ₹20 lakh to ₹1 crore
- TDS Rate: 2% on the amount exceeding ₹20 lakh
- Threshold 2: Above ₹1 crore
- TDS Rate: 5% on the amount exceeding ₹1 crore
Note: The thresholds are aggregated across all accounts held by the individual under the same PAN.
Who Deducts TDS?
TDS under Section 194N is deducted by:
- Banks (private, public, and cooperative)
- Post offices
The deduction occurs at the time of cash withdrawal exceeding the applicable threshold.
Exemptions from TDS under Section 194N
Certain entities are exempt from TDS on cash withdrawals:
- Central and State Governments
- Banks and cooperative societies engaged in banking
- Post offices
- Business correspondents of banks
- White label ATM operators authorized by the RBI
- Commission agents or traders operating under Agriculture Produce Market Committees (APMCs)
- Authorized dealers and their franchisees, sub-agents, and Full-Fledged Money Changers (FFMCs) licensed by the RBI
- Any other person notified by the Central Government in consultation with the RBI
Important Considerations
- PAN Linking: Ensure your PAN is linked to your bank account. Failure to do so may result in TDS being deducted at a higher rate of 20% under Section 206AA.
- Form 15G/15H: Submission of Form 15G or 15H is not applicable for avoiding TDS under Section 194N.
- Claiming Refund: TDS deducted under Section 194N can be claimed as a refund or adjusted against your total tax liability when filing your income tax return for the corresponding financial year.
Example Scenario
Scenario: An individual who has filed ITRs in the last 3 years withdraws ₹1.2 crore in cash during FY 2025–26.
- Threshold: ₹1 crore
- Excess Amount: ₹20 lakh
- TDS Rate: 2%
- TDS Deducted: ₹40,000 (2% of ₹20 lakh)
Understanding the provisions of Section 194N is crucial for effective financial planning and compliance. Regularly filing your ITRs and monitoring cash withdrawals can help avoid unnecessary TDS deductions.
