Section 194N of the Income Tax Act, 1961 is effective from 1st September 2019. This section was brought into force to discourage cash transactions and promote digital economy by levying Tax Deducted at Source (TDS) on cash Withdrawal from Bank above a certain limit.
In this article, we’ll discuss the complete procedure, threshold limits, TDS rates, applicability, exemptions, and more in simple language.
What is Section 194N?
Section 194N means deduction of tax at source (TDS) by a bank, co-operative bank, or post office on cash withdrawals exceeding a specified limit during a financial year by an individual/entity its Section 194N TDS On Cash Withdrawal from Bank.
Who are Liable to Deduct TDS Section 194N?
These institutions are required to deduct TDS:
- Scheduled Banks
- Co-operative Banks
- Post Offices
To whom is Section 194N Applicable?
Section 194N applies to the following types of persons withdrawing cash:
- Individual
- Hindu Undivided Family (HUF)
- Company
- Partnership Firm / LLP
- Association of Persons (AOP)
- Body of Individuals (BOI)
- Trusts, Societies, and Institutions
Threshold Limit and TDS Rates Withdrawal from bank
- If ITR filled for all 3 previous years
| In a financial year cash withdrawal | TDS Rate |
| Up to ₹1crore | NIL |
| Above ₹1crore | 2% |
- If ITR has not been filled for 3 preceding years (and time limit expired):
| In a financial year cash withdrawal | TDS Rate |
| ₹20 lakh to ₹1crore | 2% |
| Above ₹1crore | 5% |
How Section 194N Works
| Case | ITR Filed in Last 3 Years | Cash Withdrawn in FY | Threshold Limit | TDS Rate | TDS Amount Deducted |
| 1 | ✅ Yes | ₹90 lakh | ₹1crore | NIL | ₹0 |
| 2 | ✅ Yes | ₹1.2crore | ₹1crore | 2% on ₹20 lakh | ₹40,000 |
| 3 | ❌ No | ₹15 lakh | ₹20 lakh | NIL | ₹0 |
| 4 | ❌ No | ₹40 lakh | ₹20 lakh | 2% on ₹20 lakh | ₹ 40,000 |
| 5 | ❌ No | ₹1.2crore | ₹20 lakh | 2% on ₹80L + 5% on ₹20L | ₹1,60,000 + ₹1,00,000 = ₹2,60,000 |
How to determine if the Deducted has Filed ITR?
Banks/Post offices are required to verify the deductee’s income tax return filing status for the past 3 assessment years preceding the current financial year, using the income tax portal or utility provided by the CBDT (Central Board of Direct Taxes).
Step-by-Step Procedure under Section 194N
Step 1:
The person approaches the bank/post office to withdraw a large amount of cash.
Step 2:
Bank checks the total cash withdraw in a financial year.
Step 3:
Bank verifies whether the person has filed ITR for the last 3 AYs (Assessment Years).
Step 4:
Based on this verification, the applicable threshold limit and TDS rate are determined.
Step 5:
TDS is deducted on cash at the time of payment exceeding the limit.
Step 6:
TDS is deposited with the government, and the transaction is reflected in Form 26AS of the recipient.
Exemptions from Section 194N
. Government bodies
. Banking companies
. Co-operative societies in banking
. Post offices
. Business correspondents (for RBI-approved transactions)
. White label ATM operators
. Commission agent or trader operating under APMC (Agricultural Produce Market Committee) and satisfying prescribed conditions
TDS Return Filing & Reporting (For Deductors)
- Some Deductors (banks/post offices) must file TDS return in Form 26Q.
- Due dates: Within 30 days from the end of each quarter.
- TDS payment: Deposited within 7 days from the end of the month in which it was deducted.
Penalties and Consequences
- Interest and late fee may be levied on delay in TDS payment or return filing.
- Non-deduction or non-payment of TDS can result in disallowance of expenses and penalty u/s 271C (equal to the amount not deducted).
Claim credit for TDS deducted under Section 194N
Step-by-Step Process to Claim TDS Credit under Section 194N
1. TDS Form 26AS / AIS are verify
- Login the Income Tax e-Filing portal
- Go to e-file ‘Income Tax Returns’ → ‘View Form 26AS’
- Or check AIS (Annual Information Statement)
2. ITR file (e.g., ITR-1, ITR-3, etc.)
- Choose write ITR form based on your income source.
3. Report TDS in the ITR
- Navigate to the TDS Schedule (TDS2 – Tax Deducted on Other than Salary)
- Enter the TAN of the deductor (i.e., bank/post office)
- Enter the amount deducted, year, and the section 194N
- The pre-filled details from Form 26AS may appear automatically.
4. Claim the TDS as Tax Credit
- The amount deducted under 194N is treated as advance tax paid by the taxpayer.
- It’s adjusted against your final tax liability.
- If tax paid is less than TDS deducted, you’ll get a refund.
5. Submit the Return and e-Verify
- After filling all required data, submit your return online.
- Verify the Aadhaar OTP, net banking, or other available methods.
Example
If ₹20,000 was deducted under 194N during FY 2024–25, and your total tax liability is ₹10,000:
- The ₹10,000 tax liability is adjusted.
- The remaining ₹10,000 will be refunded, if correctly claimed.
Frequently Asked Questions (FAQs)
Q1. Will TDS be deducted on cash withdrawals by Government departments?
No, government bodies are exempt under this section.
Q2. TDS under Section 194N are applicable to ATM withdrawals?
Yes, but only if the cumulative cash withdrawal exceeds the threshold limits in a financial year.
Q3. Claim credit for TDS deducted under Section 194N?
Yes, TDS deducted is reflected in your Form 26AS and can be claimed while filing your ITR.
Q4. Section 194N is applied for cheque or online transfer?
No, only cash withdrawal are applied Section 194N
Q5. What happens if TDS is not deducted?
Banks are face penalties and interest under the Income Tax Act for non-compliance.
Conclusion
Section 194N is a key provision aimed at curbing excessive cash transactions and boosting digital payments in India. While the section mainly targets large cash withdrawals, it’s crucial for taxpayers and institutions to be aware of their responsibilities to avoid unnecessary deductions and penalties.
Always ensure you file your ITR on time and track cash withdrawals carefully if they are nearing the threshold limits.