Section 194N – TDS on Cash Withdrawal in Excess of Rs 1 Crore

Section 194N was introduced to discourage large cash transactions in the economy. Under section 194N, TDS of 2% is deducted for cash withdrawals from banks exceeding Rs. 1 crore during the financial year. 

In case co-operative societies, TDS threshold limit is relaxed to Rs. 3 crores. If the person has not filed ITR for the past 3 years, the TDS threshold and rates differ based on amount of withdrawal. However, TDS needs to be deducted only on the amount exceeding threshold limits. 

This article explains in detail, the meaning and applicability, threshold limits, TDS rates, and examples illustrating TDS calculations for section 194N.

What is Section 194N?

• Section 194N is applicable on more than Rs 1 crore cash withdrawals from the bank account,  during a financial year. 
• It will apply to the withdrawal of all the sums of money or an aggregate of sums from a particular bank in a financial year. 
• The section will apply to withdrawals made by any taxpayer, including:
  • 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 it shall not apply if payment is made to-

• The Government
• Any bank (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,
• A 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

Who Will Deduct TDS Under Section 194N?

• Any banks, co-operative banks, and post offices responsible for making cash payment to account holders should deduct TDS under section 194N.

There are certain categories of persons (payee) to whom the provision of this section will not apply. They are listed below:

• Any government body
• Any bank, including co-operative banks
• Any business correspondent of a banking company (including co-operative banks)
• Any white label ATM operator of any bank (including co-operative banks)
• Trader of APMC paying to the farmers.
• Any other person notified by the government.

How to Calculate the Threshold Limit?

• The bank shall deduct tax while making cash payment from the bank account on the amount over Rs 1 crore. TDS will be deducted only on the amount exceeding Rs 1 crore.
• The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not per the taxpayer’s account. For example, if a person has three bank accounts with three different banks, he can withdraw cash of Rs 1 crore * 3 banks, i.e. Rs 3 crore without any TDS.
• If the payee withdraws a sum of money at regular intervals, the payer will have to deduct TDS from the amount once the total sum withdrawn exceeds Rs 1 crore in a financial year. For example, if a person withdraws Rs 99 lakh in aggregate in the financial year and next time, an amount of Rs 1,50,000 is withdrawn, the TDS liability is only on the excess amount of Rs 50,000.
• If a taxpayer holds multiple accounts with the same bank, the total cash withdrawals from all those accounts are totaled to determine whether the TDS threshold has been exceeded.

Rate of TDS Under Section 194N

• The rate of TDS depends on the return filing status of the individual withdrawing the money. Summarized as follows

• The payer will have to deduct TDS on the cash payments/withdrawals of more than Rs 1 crore in a financial year under Section 194N. 
• If the individual receiving the money has not filed an income tax return for three years immediately preceding the year, the threshold limit is reduced to Rs 20 lakh. 
• The TDS will be deducted at:
  • 2% on the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore 
  • 5% for withdrawal exceeding Rs 1 crore

Compliance Requirements under Section 194N

• The banks or post offices responsible for deducting TDS should obtain Tax Deduction and Collection Account Number (TAN). 
• They should remit the TDS amount deducted within the 7th of next month.
• Form 26Q needs to be filed quarterly be the deductor to the government, within the last date of following month of the quarter. 

Points to Remember 

1. The recipient of cash cannot furnish Form No.15G/15H to the bank and cannot apply for a lower deduction certificate u/s 197.
2. While calculating three years immediately preceding the years, if the date of return u/s 139(1) has not expired, then that assessment year is not to be considered.

Illustrations

Example 1

Mr. Raj has made the following withdrawals during the financial year 2024-25. He has not filed his ITR for the financial year-2021-22, 2022- 23 2023-24 and that the due date for filing of return for these years has expired.

3. Under section 194N, for computing the withdrawal limit – withdrawals made from all the accounts maintained with the same bank to be considered cumulatively.

Example 2

Mr. Raj maintains a savings and current account with XYZ bank. His transactions during the FY 2024-25 are as follows:

4. If there are multiple bank accounts among different banks, tax deduction limit shall be based on the individual banks.

Example 3

Mr. Raj has withdrawn cash from the following banks during the financial year–

In the above example, No bank is required to deduct TDS under Section 194N as the limit of Rs 1 crore is not exhausted in any of the banks.

However, if Mr Raj withdraws cash of more than Rs 1 crore from SBI bank, then SBI bank is liable to deduct TDS at 2% or 5%, as the case may be.

Related Articles:

• Section 194D – TDS on Insurance Commission
• TDS Refund – How to claim TDS Refund
• Form 16B – TDS Certificate for Sale of Property – Download from Traces
• How to get registration in TRACES?