Section 194N of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on cash withdrawals exceeding specified limits from banks, co-operative societies, or post offices. This provision aims to discourage large cash transactions and promote digital payments.
1. Applicability of Section 194N
✅ Covered Transactions:
- Cash withdrawals from:
- Banks(including private/public sector).
- Co-operative banks.
- Post offices.
❌ Exemptions:
- Withdrawals by government entities.
- Withdrawals by banks or ATM operators.
- Cash withdrawals for business correspondentsof banks.
2. TDS Rates & Thresholds
| RECIPIENT CATEGORY | THRESHOLD (ANNUAL) | TDS RATE |
| Individuals/HUFs with ITR filed for last 3 years | ₹20 lakh | 2% (above ₹20 lakh) |
| Others (including non-filers) | ₹1 crore | 2% (₹1–2 crore) + 5% (above ₹2 crore) |
Example:
- Withdrawal: ₹25 lakh by an ITR-filing individual.
- TDS (2% on ₹5 lakh): ₹10,000 → Net Payment: ₹24.9 lakh.
3. Who Deducts TDS?
- Banks/Post Officesat the time of cash withdrawal.
4. Compliance Requirements
- TAN Not Required: Banks use their PANfor TDS deduction.
- Deposit Deadline: By the 7th of the next month(March: April 30).
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato the account holder.
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
6. Key Takeaways
🔹 2% TDS on cash withdrawals > ₹20 lakh (ITR filers) or ₹1 crore (non-filers).
🔹 5% TDS on amounts > ₹2 crore (non-filers).
🔹 No TDS for digital/cheque withdrawals.
🔹 Verify ITR filing status to avoid higher TDS.
