TDS on cash withdrawal is a tax applied by the government if a person withdraws a large amount of cash from bank account.
What is the purpose of Section 194N of the Income Tax Act?
The purpose of Section 194N of the Income Tax Act is to discourage cash payments and to promote digital payments.
When it was introduced?
It was introduced in Union Budget 2019 by Finance Minister Smt. Nirmala Sitharaman to curb the flow of black money and encourage digital transactions.
It is applicable starting from 1st September 2019.
What is the threshold limit for TDS on cash withdrawals as per Section 194N?
TDS is applicable if the cash withdrawal from a bank account exceeds certain limits:
- 2% TDS on cash withdrawals over Rs.1 crore in a financial year.
- 2% TDS on cash withdrawals exceeding Rs.20 lakhs and 5% for withdrawal exceeding Rs.1 crore for those who have not filed income tax returns for the past three years.
Who is responsible for deducting TDS on cash withdrawals?
Under Section 194N of the Income Tax Act, if cash withdrawals exceeding Rs 20 lakh or Rs 1 crore (depending on the conditions) TDS is to be deducted by banks (private, public, and co-operative) or post offices before the amount is handed over to the account holder.
Section 194N is applicability
This section is applicable to the withdrawals made by any taxpayer, which include :
- An individual
- A Hindu Undivided Family (HUF)
- A company
- A partnership firm or an LLP
- An Association of Person (AOPs) or Body of Individuals (BOIs)
But, the government has also notified that the provision of this section are not applicable to the persons is payment is made to :
- The Central or State Government
- Banking company(private or public sector)
- A co-operative bank
- A post-office
- Business correspondents of a banking company
- White Label ATM operators 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,
- 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
How to TDS is calculated if threshold limit exceeds?
If a taxpayer withdraws more than Rs. 1 croce in a financial year than the payer is require to deduct TDS @2% on the amount which is withdrawn in excess of Rs. 1 crore.
Let us understand this with the help of example.
Anjana has withdrawn cash from the State Bank of India in the FY 23-24 in various phases as under :
| Date | Amount (in lakhs) |
| 21 May 2023 | 40 |
| 20 Jun 2023 | 10 |
| 9 Oct 2023 | 25 |
| 29 Nov 2023 | 25 |
| 26 Mar 2024 | 10 |
Now, in the above example Anjana withdraws upto dated 29 Nov 2023 is Rs. 1 crore which has not crossed the limit. So, there will be no TDS applicable.
But on 26 Mar 2024, Anjana withdraws in excess of Rs. 1 crore. So, TDS @2% will be deducted on the amount of Rs. 10 Lakh i.e., Rs. 20,000.
Points To Remember
- The TDS limit for bank withdrawals applies individually to each bank account.
- If a person has three bank accounts with different banks, each bank allows withdrawals up to Rs. 1 crore without any TDS deduction.
- The total amount that can be withdrawn without TDS deduction would be Rs. 3 crores (Rs. 1 crore per bank account).
For example
Mr. Deepak has withdrawn cash during the financial year from the following banks :
| Bank | Total cash withdrawn during the FY 23-24 (in Rs) |
| HDFC Bank | 70 lakh |
| SBI Bank | 45 lakh |
| Canara Bank | 25 lakh |
Even though Mr. Deepak has withdrawn overall Rs.1.4 crore, no TDS deduction is required because he has not exceeded the Rs. 1 crore limit in any individual bank account.
The TDS limit applies separately to each bank account, not collectively across all accounts.
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FAQs
Yes, you can claim a refund of TDS deducted u/s 194N or adjust it against your total income tax liability.
To claim a refund, your annual income must not exceed the basic exemption limit, and you must file an Income Tax Return (ITR).
The recipient of cash transactions cannot furnish Form No. 15G/15H or apply for a lower deduction certificate u/s 197 as these provisions are not applicable to cash withdrawals covered under section 194N of the Income Tax Act.