Section 194N of the Income Tax Act was introduced by the Finance Act, 2019 and became effective from 1st September 2019. It aims to discourage large cash transactions and promote the digital economy.
This section mandates Tax Deducted at Source (TDS) on cash withdrawals exceeding specified limits from a bank, co-operative bank, or post office.
Applicability of Section 194N
| Particulars | Details |
| Who deducts TDS | Bank, Co-operative Bank, or Post Office |
| Who receives the payment | Any person (individual, HUF, company, firm, AOP, BOI, etc.) withdrawing cash |
| Nature of payment | Cash withdrawal from one or more accounts during a financial year |
Threshold Limit for TDS Deduction
| Cash Withdrawal Limit | TDS Rate (If ITR filed for any of last 3 AYs) | TDS Rate (If ITR NOT filed for last 3 AYs) |
| Upto ₹1 crore | No TDS | No TDS |
| > ₹1 crore | 2% on amount exceeding ₹1 crore | 2% up to ₹20 lakh and 5% above ₹1 crore |
| > ₹20 lakh and ≤ ₹1 crore | No TDS | 2% |
| > ₹1 crore | 2% | 5% |
📌Important Notes:
- If the person has NOT filed ITRs for all 3 previous Assessment Years — a higher rate of TDS is applicable under Section 206AB.
- The limit applies per bank or institution, not consolidated across all banks.
Exemptions from Section 194N
The provisions of 194N do not apply to the following entities:
- Central or State Government
- Any banking company or co-operative society engaged in carrying on the business of banking
- Post Office
- Business Correspondents of banks
- White Label ATM Operators
- Any person or class of persons notified by the Central Government (e.g., cash withdrawals for certain government schemes or entities like MFIs)
Step-by-Step Explanation of Provisions
🔹 Step 1: Identify the Recipient
Determine whether the person withdrawing cash has:
- Filed income tax returns for the last three assessment years?
- Withdrawn cash above ₹20 lakh or ₹1 crore in the financial year?
🔹 Step 2: Check Applicable Threshold
- If total cash withdrawal ≤ ₹20 lakh → No TDS
- If total cash withdrawal > ₹20 lakh and ≤ ₹1 crore → Check if ITR filed
- If withdrawal > ₹1 crore → TDS applies for all (rate depends on ITR status)
🔹 Step 3: Calculate TDS
Scenarios:
- If ITR filed for any 1 of last 3 AYs:
- No TDS up to ₹1 crore
- 2% TDS on excess amount over ₹1 crore
- If ITR NOT filed for all 3 AYs:
- 2% on cash withdrawal from ₹20 lakh to ₹1 crore
- 5% on amount exceeding ₹1 crore
🔹 Step 4: Deduct and Deposit TDS
- The bank or institution deducts TDS at the time of actual cash payment.
- TDS is to be deposited with the Income Tax Department as per timelines under Rule 30.
Important Clarifications
- Aggregate withdrawals from all accounts maintained in the same bank are counted together.
- Cash withdrawal from multiple branches of the same bank is also considered collectively.
- TDS under this section is not an additional tax — it can be claimed as credit while filing ITR.
Digital or cheque withdrawals are not covered — only cash withdrawals.