Section 194N of the Income-tax Act, 1961 mandates deduction of tax at source (TDS) on cash withdrawal exceeding specified thresholds from banking companies, co-operative banks, or post offices. The provision was introduced by the Finance Act, 2019 to discourage large cash transactions and promote digital payments.
The obligation to deduct TDS lies with the bank or post office at the time of cash payment.
TDS On Cash Withdrawal Limit
The applicability of TDS depends upon whether the recipient has filed income tax returns for the preceding three assessment years for which the due date under Section 139(1) has expired.
For persons who have filed ITRs for the preceding three assessment years:
- No TDS up to ₹1 crore in a financial year.
- 2% TDS on the amount exceeding ₹1 crore.
For persons who have not filed ITRs for the preceding three assessment years:
- 2% TDS on cash withdrawals exceeding ₹20 lakh up to ₹1 crore.
- 5% TDS on cash withdrawals exceeding ₹1 crore.
TDS is applied only on the amount exceeding the relevant threshold and not on the entire withdrawal.
Meaning of “Cash Withdrawal”
Section 194N applies strictly to cash withdrawals. Transfers through banking channels such as NEFT, RTGS, IMPS, UPI, cheques (non-cash instruments), and other digital modes do not attract TDS under this provision.
Lawful Methods to Avoid or Minimise TDS
A. Timely Filing of Income Tax Returns
The most effective way to avoid lower thresholds is to ensure that income tax returns for the preceding three assessment years are filed within the prescribed timelines. Filing ITRs increases the threshold from ₹20 lakh to ₹1 crore, significantly reducing the possibility of TDS deduction.
Banks generally verify return-filing status through the PAN database. Ensuring compliance helps avoid deduction at lower limits.
B. Submission of Return Filing Proof to Bank
In certain cases, banks may not update return filing status correctly. Providing ITR acknowledgment copies or confirmation of filing to the bank ensures correct classification and prevents premature deduction of TDS.
C. Planning Withdrawals Within Financial Year Limits
Section 194N operates on a financial year basis (1 April to 31 March). Proper financial planning to keep total annual withdrawals within the prescribed threshold can prevent TDS.
Where large withdrawals are unavoidable, structuring transactions across two financial years may help remain within limits in each year.
D. Using Non-Cash Payment Mechanisms
Since Section 194N applies only to cash withdrawals, businesses and individuals can avoid TDS by using electronic transfers, account payee cheques, or digital payment systems. This is particularly relevant for businesses that traditionally rely on cash for vendor or wage payments.
E. Use of Multiple Bank Accounts
The threshold is applied by each banking company or post office. Practically, this means the limit is monitored at the bank level. However, banks aggregate withdrawals across all accounts linked to the same PAN within that bank. Taxpayers should exercise caution and ensure compliance, as aggressive structuring may attract scrutiny.
Persons Exempt from Section 194N
TDS under Section 194N does not apply to certain specified entities, including:
- The Government.
- Banking companies and co-operative banks.
- Post offices.
- Business correspondents of banks.
- White label ATM operators.
- Commission agents or traders operating under Agricultural Produce Market Committees (subject to conditions).
- Other persons notified by the Central Government in consultation with the Reserve Bank of India.
These exemptions are strictly interpreted and apply only to specified categories.
Whether Form 15G/15H or Section 197 Certificate is Available
Unlike other TDS provisions, Section 194N does not permit submission of Form 15G or 15H for non-deduction. Further, no mechanism exists under Section 197 to obtain a lower or nil deduction certificate for cash withdrawals under Section 194N.
Therefore, compliance planning rather than declaration-based exemption is required.
Treatment of TDS Deducted
TDS deducted under Section 194N is not a final tax. It is adjustable against the total tax liability of the taxpayer for that financial year.
The deducted amount appears in Form 26AS and the Annual Information Statement (AIS). If the total tax liability is lower than the TDS deducted, the excess may be claimed as a refund while filing the income tax return.
Practical Illustration
If a taxpayer who has filed returns withdraws ₹1.5 crore in cash during a financial year, TDS will apply at 2% on ₹50 lakh (i.e., the amount exceeding ₹1 crore).
If a non-filer withdraws ₹70 lakh in a financial year, TDS will apply at 2% on ₹50 lakh (₹70 lakh minus ₹20 lakh).
If a non-filer withdraws ₹1.5 crore, TDS will apply:
- 2% on ₹80 lakh (₹1 crore minus ₹20 lakh), and
- 5% on ₹50 lakh (amount exceeding ₹1 crore).
Compliance Considerations for Businesses
Businesses operating in cash-intensive sectors should:
- Maintain accurate withdrawal tracking on a financial year basis.
- Ensure return filing compliance.
- Evaluate shifting operational payments to banking channels.
- Monitor cumulative withdrawals across all accounts within the same bank.
Large cash withdrawals may also trigger scrutiny under other provisions relating to high-value transactions.
TDS on cash withdrawal without PAN
Under the Income-tax Act, quoting a valid Permanent Account Number (PAN) is mandatory for all transactions subject to TDS. This requirement is codified in Section 206AA, which applies universally to TDS provisions, including Section 194N.
Under Section 206AA, if a person does not furnish a PAN to the “payer,” the law requires tax to be deducted at the higher of:
- The rate specified in the relevant TDS provision;
- The rate(s) in force under the Finance Act; or
- 20% (except where specific lower rates are prescribed under other TDS rules).
This means that in the absence of PAN, banks must apply the higher TDS rate of 20% on cash withdrawals subject to Section 194N rather than the standard 2%/5%. The requirement ensures that transactions lacking PAN are subject to a punitive minimum deduction to enhance tax compliance and discourage anonymised high-value cash movement.
Cash withdrawal TDS Calculator
India’s Income-tax Department provides online tools and calculators that help you estimate TDS under Section 194Non cash withdrawals, though the specific e-Filing portal tool focuses on applicable TDS rates rather than a full calculator.
Official TDS Calculator (Income-tax India e-Filing)
The Income-tax Department’s TDS Calculator page lists Section 194N as one of the types of payments for which TDS can be computed. Users can select the section and enter amounts to compute TDS. This tool is part of the department’s suite of TDS calculation utilities.
Third-Party Online Calculators
Several independent tax-related websites provide TDS calculators that include Section 194N (cash withdrawal) as an option. These allow you to:
- Choose Section 194N;
- Enter the cash withdrawal amount in a financial year;
- Specify whether you are a return-filing person (higher threshold of ₹1 crore) or non-filer (lower threshold of ₹20 lakh); and
- Compute the total TDS deducted.
Examples include generic TDS calculators on tax portals such as ClearTax or LMA, which support multiple sections including Section 194N.
How to Calculate TDS on Cash Withdrawal Yourself
Even without a dedicated online calculator, you can compute cash withdrawal TDS manually based on statutory thresholds and rates:
- Determine filing status:
- If you have filed ITRs for the preceding three assessment years, the threshold is ₹1 crore.
- If you have not filed ITRs, the lower threshold is ₹20 lakh.
- Compute cumulative withdrawals in the financial year from the same bank (all accounts aggregated).
- Subtract the applicable threshold to find the excess amount.
- Apply the statutory TDS rate:
- 2% for amounts over ₹1 crore (if filer) or between ₹20 lakh and ₹1 crore (if non-filer).
- 5% for amounts over ₹1 crore if non-filer.
Example (ITR Filer):
If total cash withdrawn is ₹1.20 crore in a year, the excess over the ₹1 crore threshold is ₹20 lakh and TDS would be 2% of ₹20 lakh = ₹40,000.
Example (Non-Filer):
If total cash withdrawn is ₹50 lakh and you are a non-filer, the excess over the ₹20 lakh threshold is ₹30 lakh, and TDS is 2% of ₹30 lakh = ₹60,000.
Summary of TDS Rate Structure Used by Calculators
| Category | Threshold | Applicable TDS |
| ITR-filer | ₹1 crore | 2% on excess |
| Non-filer | ₹20 lakh | 2% (₹20 l–1 cr) and 5% (above ₹1 cr) |
Banks and post offices typically perform the computation automatically based on withdrawals and your PAN/ITR filing status, but these calculator tools help pre-assess potential TDS.
TDS On Cash Withdrawal Refund
TDS deducted on cash withdrawals under Section 194N is not a final tax; it is a mechanism to collect tax in advance. The amount deducted as TDS can be either adjusted against your total tax liability for the financial year or claimed as a refund if the TDS exceeds your tax liability or if your income is below taxable limits.
Rule 37BA of the Income-tax Rules clarifies credit for TDS under Section 194N: credit for tax deducted and paid to the government shall be given to the person from whose account the tax has been deducted, in the assessment year relevant to the previous year in which such tax deduction is made. This ensures TDS credit is available even if the recipient has no other taxable income.
When and How Refund Can Be Claimed
1. Filing Income Tax Return (ITR):
To claim a refund of TDS deducted under Section 194N, you must file an income tax return for the relevant financial year. The TDS will be reflected in your Form 26AS or Annual Information Statement (AIS) and can be claimed either as a refund or set off against any tax liability in the return.
2. Adjustment Against Total Tax Liability:
If your total tax liability (after deductions/exemptions) is greater than the TDS deducted, the TDS can be used to reduce your tax payable. Any excess over the total tax due will be refunded.
3. Full Refund Situation:
If your annual income is below the basic exemption limit or your tax liability is zero after allowable deductions, you are entitled to a full refund of the TDS deducted when you file your ITR.
4. TDS Certificate (Form 16A):
Banks and post offices deducting TDS should issue Form 16A for Section 194N deductions. This facilitates tracking in Form 26AS and enhances accuracy when claiming refunds.
Procedural Steps for Claiming a Refund
- Verify TDS in Form 26AS/AIS: Confirm that the TDS deducted under Section 194N is reflected correctly in your Form 26AS or AIS on the Income-tax Department’s portal.
- File ITR on Time: File your ITR for the financial year in which the cash withdrawal occurred. Include all income and claim TDS credit under the “Tax Paid” section.
- Compute Tax Liability: Compute your total tax liability based on income and deductions. If total tax liability is less than TDS deducted, claim the excess as a refund.
- E-verify Return: Complete e-verification of the ITR to initiate processing by the Centralised Processing Centre (CPC). Refunds are generally disbursed to the bank account provided in the ITR.
Practical Example
Suppose a taxpayer withdrew ₹1.5 crore during a financial year and the bank deducted TDS of ₹40,000 under Section 194N. If the taxpayer’s total taxable income for the year is ₹4 lakh (below the basic exemption limit), their total tax liability may be zero. In such a case, upon filing the ITR and claiming the TDS credit, the entire ₹40,000 can be refunded.
Important Legal and Compliance Points
- Refund Only in Same Year: Under Rule 37BA, credit for TDS under Section 194N must be claimed in the year in which it is deducted. It cannot be carried forward to another year.
- ITR Filing is Mandatory: Without filing an ITR, claiming a refund of TDS under Section 194N is generally not possible, even if your income is nil.
- Form 15G/15H Not Applicable: You cannot submit Form 15G/15H to prevent TDS under Section 194N, nor can you obtain a lower deduction certificate under Section 197 for this purpose.
- PAN Linkage: Ensure your PAN is quoted and linked correctly to your bank accounts. Inaccurate PAN details can delay or complicate refund processing because TDS credit may not reflect properly in Form 26AS.
Common Issues and Practical Tips
Delay in Refund Processing: Refund claims may take time at the CPC, especially if the return has inconsistencies or documentation issues. Accurate information and timely filing help expedite refunds.
Bank Refund Options: In some cases, banks have internal procedures to adjust or refund incorrectly deducted TDS (e.g., if proof of ITR filing is submitted promptly). However, this depends on bank policy and should be pursued with the branch if applicable.
Conclusion
Avoiding TDS on cash withdrawal under Section 194N is primarily a matter of compliance and financial planning. Timely filing of income tax returns, maintaining withdrawals within statutory thresholds, and using non-cash payment methods are the most effective and legally compliant strategies. Where TDS is deducted, it remains adjustable against tax liability and refundable through the regular income tax return process.
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