TDS Under Section 194N — Tax on Cash Withdrawal from Banks Above Threshold

Section 194N of the Income Tax Act requires banks, cooperative banks and post offices to deduct TDS when a person withdraws cash exceeding certain thresholds from their accounts. Introduced to discourage large cash transactions and promote digital payments, Section 194N has different rates for ITR filers and non-filers. Here is the complete guide.

Who Deducts TDS Under Section 194N?

TDS is deducted by:

• Scheduled banks
• Cooperative banks
• Post offices

The deduction applies on cash withdrawals exceeding the prescribed threshold during a financial year, aggregated across all accounts of the same person in the same bank.

TDS Rates and Thresholds Under Section 194N

For persons who have filed ITR in any of the 3 preceding financial years:

• Cash withdrawal up to ₹1 crore: No TDS
• Cash withdrawal above ₹1 crore: 2% TDS on the amount above ₹1 crore

For persons who have NOT filed ITR in any of the 3 preceding financial years:

• Cash withdrawal up to ₹20 lakh: No TDS
• Cash withdrawal ₹20 lakh to ₹1 crore: 2% TDS on the amount above ₹20 lakh
• Cash withdrawal above ₹1 crore: 5% TDS on the amount above ₹1 crore

Exemptions from Section 194N

The following are exempt from 194N TDS:

• Government departments and agencies
• Banks themselves (one bank withdrawing from another)
• Cooperative societies engaged in carrying on business of banking
• Business correspondents of banks (for certain transactions)
• Cash replenishment agencies for ATMs
• Notified entities (e.g., registered dealers in agricultural produce)

Utilising the TDS Credit

The 194N TDS deducted reflects in Form 26AS and AIS. It can be claimed as a credit against income tax liability in the ITR. If the TDS exceeds total tax liability, a refund is due. The TDS amount does NOT represent income — it is a tax credit mechanism.

Conclusion

Section 194N TDS is a digital payment incentive mechanism — higher TDS rates for non-ITR filers encourage both ITR compliance and shift to digital payments. SPOTON handles ITR filing and TDS credit reconciliation for all clients across Kerala. Contact us for expert income tax compliance services.