Cash withdrawals are discouraged by the Government of India by making it expensive through TDS cut. This is where Section 194N comes into force.
See also: TDS: All you need to know about Section 194J
What is Section 194N?
According to the provisions of Section 194N, TDS must be deducted if an amount is withdrawn in cash by a person in a fiscal year, exceeding Rs 20 Lakh if no ITR has been filed for the three previous AYs, and Rs 1 Crore if ITRs have been filed for all three previous AYs.
The limit in a financial year is with respect to a bank or post office account and not as per the taxpayer’s account.
TDS on cash withdrawal by cooperative societies
In the Union Budget 2023-24, Finance Minister Nirmala Sitharaman increased the limit for TDS on cash withdrawal by cooperative societies. This limit has been increased now from Rs 1 Crore to Rs 3 Crore.
“It is proposed to enable cooperatives to withdraw cash up to Rs 3 Crore in a year without being subjected to TDS on such withdrawal,” the finance minister said in her Budget speech on February 1, 2023.
Rate of TDS on cash withdrawals
| Cash withdrawals of more than Rs 1 Crore, if the person withdrawing the cash has filed ITRs | 2% |
| Cash withdrawals of more than Rs 20 Lakh by those who have not filed ITRs | 2% |
| On cash withdrawal of more than Rs 1 Crore by those who have not filed ITRs | 5% |
Who deducts TDS?
Under Section 194N, banks are responsible to deduct TDS in case of cash withdrawals from accounts above the specified limit.
Applicability of TDS on cash withdrawal under Section 194N
- An individual
- A Hindu Undivided Family (HUF)
- A company
- A partnership firm or an LLP
- An Association of Persons (AOP) or Body of Individuals (BOI)
Non-applicability of TDS on cash withdrawal under Section 194N
TDS on cash withdrawal under Section 194N is not applicable on following entities:
- Central or state governments
- Private or public sector bank
- Any cooperative bank
- Post office
- Business correspondent of any bank
- White label ATM operator of any bank
- Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to farmers on account of purchase of agriculture produce
- Authorised dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India (RBI) and its franchise agents
- Any other person notified by the government in consultation with the RBI
FAQs
When was Section 194N introduced?
Section 194N was introduced through the Finance Bill 2019 to curb high-value cash withdrawals.
From when is TDS on cash withdrawal under Section 194N applicable?
TDS on cash withdrawal under Section 194N is applicable starting September 1, 2019 (FY20).
At what rate is TDS on cash withdrawal under Section 194N deducted?
TDS will be deducted at the rate of 2% on cash withdrawals exceeding Rs 1 Crore, if the person withdrawing cash has filed income tax return (ITR) for any or all three previous assessment years (AYs). TDS will be deducted at 2% on cash withdrawals of more than Rs 20 Lakh and 5% for cash withdrawals exceeding Rs 1 Crore, if the person withdrawing cash has not filed the ITR for any of the preceding three AYs.