TDS on Cash Withdrawal under Section 194N – Bank Limits and Rates for FY 2026-27

Introduction

Businesses and individuals making substantial cash withdrawals from banks should be aware of the Tax Deducted at Source (TDS) provisions under Section 194N of the Income-tax Act.

Section 194N requires banks, co-operative banks and post offices to deduct TDS when the aggregate cash withdrawals by a person during a financial year exceed specified limits. The applicable threshold and TDS rate depend primarily on the taxpayer’s income-tax return filing history.

For FY 2026-27, the basic framework continues to distinguish between taxpayers who have regularly filed their income-tax returns and specified taxpayers who have not filed returns for the prescribed preceding years.

What is Section 194N?

Section 194N applies when a person withdraws cash from one or more accounts maintained with:

A banking company

A co-operative bank engaged in banking business

A post office

The provision is intended to discourage high-value cash transactions and promote digital or banking-channel payments.

Importantly, the limit is considered on the aggregate cash withdrawals during the financial year, rather than looking only at one individual withdrawal.

Section 194N TDS Rates for FY 2026-27

The applicable rate depends on whether the recipient has filed income-tax returns for the three immediately preceding assessment years and the due dates under Section 139(1) have expired.

Person who has filed the required ITRs

For a person who has filed income-tax returns for the prescribed preceding years, TDS generally applies when aggregate cash withdrawals exceed:

₹1 crore during the financial year.

The TDS rate is:

2% on the amount of cash withdrawal exceeding ₹1 crore.

For a co-operative society, the ₹1 crore threshold is increased to ₹3 crore, subject to the applicable conditions.

Person who has not filed the required ITRs

Where a person has not filed the income-tax returns for all of the three assessment years immediately preceding the previous year in which the cash withdrawal is made, and the due date under Section 139(1) has expired, the lower threshold applies.

The applicable rates are:

Aggregate Cash Withdrawal During FY	TDS Rate
Up to ₹20 lakh	Nil
Above ₹20 lakh and up to ₹1 crore	2%
Above ₹1 crore	5%

For eligible co-operative societies, the ₹1 crore threshold in this framework is increased to ₹3 crore.

Quick Comparison

Particulars	ITR Filed as Prescribed	Required ITRs Not Filed
Initial threshold	₹1 crore	₹20 lakh
TDS above initial threshold	2%	2%
TDS above ₹1 crore	2%	5%
Co-operative society threshold	₹3 crore	₹3 crore
Applicable section	194N	194N

Example 1 – Regular ITR Filer

Suppose Mr. A withdraws ₹1.20 crore in cash during FY 2026-27 and has filed the required income-tax returns.

TDS will generally apply to the amount exceeding ₹1 crore.

Cash withdrawal: ₹1,20,00,000

Threshold: ₹1,00,00,000

Excess withdrawal: ₹20,00,000

TDS @ 2%: ₹40,000

Therefore, the bank would deduct ₹40,000 as TDS under Section 194N.

Example 2 – Non-Filer of Required Returns

Suppose Mr. B has not filed income-tax returns for all three prescribed preceding assessment years and the applicable filing due dates have expired.

He withdraws ₹50 lakh in cash during FY 2026-27.

Since the withdrawal exceeds ₹20 lakh but does not exceed ₹1 crore, TDS would generally apply at 2% on the amount of withdrawal as prescribed under Section 194N.

Cash withdrawal: ₹50,00,000

TDS @ 2%: ₹1,00,000

Example 3 – Cash Withdrawal Above ₹1 Crore by a Non-Filer

Suppose Mr. B, who falls under the specified non-filer category, withdraws ₹1.50 crore during the financial year.

Since the aggregate withdrawal exceeds ₹1 crore, the applicable TDS rate becomes 5% on the amount as prescribed under Section 194N.

Cash withdrawal: ₹1,50,00,000

TDS @ 5%: ₹7,50,000

The exact deduction should be determined by the bank based on the applicable statutory calculation and the taxpayer’s withdrawal history.

Is the ₹1 Crore Limit Per Bank Account?

No.

The Section 194N threshold is not simply calculated separately for each bank account. Cash withdrawals from one or more accounts maintained with the banking company, co-operative bank or post office are considered for determining the applicable threshold.

Therefore, splitting withdrawals across multiple accounts does not necessarily avoid Section 194N.

Who Deducts TDS under Section 194N?

The responsibility for deducting TDS lies with the:

Bank

Co-operative bank

Post office

The taxpayer withdrawing the cash does not separately deposit the Section 194N TDS.

The bank or other deductor determines the applicable rate based on the taxpayer’s cash withdrawal and ITR filing status.

What Counts as Cash Withdrawal?

Section 194N broadly covers cash payments or withdrawals made from the relevant accounts.

Businesses should therefore monitor cumulative cash withdrawals throughout the financial year rather than considering each transaction independently.

For accounting and compliance purposes, it is advisable to maintain a proper record of:

Cash withdrawals

Bank accounts

Dates of withdrawals

Amounts withdrawn

TDS deducted by the bank

Important Exemptions from Section 194N

Section 194N does not apply to certain specified recipients and transactions.

The Income Tax Department lists exemptions including:

Government

Banking companies

Co-operative banks or societies engaged in banking business

Post offices

Certain business correspondents

Certain white-label ATM operators

Other persons as may be notified by the Government in consultation with the RBI.

Certain categories may also receive specific treatment through Government notifications.

TDS Credit for the Taxpayer

TDS deducted under Section 194N is not an additional final tax on the cash withdrawal.

The amount deducted is generally reflected as TDS credit against the taxpayer’s PAN and can be considered while determining the taxpayer’s final income-tax liability, subject to applicable provisions.

Taxpayers should reconcile the TDS appearing in their tax records with the TDS certificate/records provided by the bank.

Common Mistakes to Avoid

Looking only at individual withdrawals

The threshold is based on aggregate cash withdrawals during the relevant financial year.

Maintaining multiple bank accounts to avoid TDS

Splitting cash withdrawals across accounts may not prevent the application of Section 194N.

Ignoring ITR filing history

The ₹20 lakh threshold can become relevant for persons falling within the specified non-filer category.

Not reconciling TDS deducted by the bank

Businesses and individuals should verify the TDS reflected against their PAN.

Assuming TDS is a penalty

TDS under Section 194N is a tax deduction mechanism and not, by itself, a penalty for withdrawing cash.

How Businesses Can Manage Section 194N Compliance

Businesses that regularly deal with cash should:

Monitor cash withdrawals across all bank accounts.

Review cumulative withdrawals periodically.

Ensure timely filing of income-tax returns.

Reconcile bank statements with books of accounts.

Track TDS deducted by banks.

Avoid unnecessary high-value cash transactions.

Maintain proper documentation for significant cash withdrawals.

Frequently Asked Questions (FAQs)

What is the basic cash withdrawal limit under Section 194N for FY 2026-27?

For persons who have filed the prescribed income-tax returns, TDS generally becomes applicable when aggregate cash withdrawals exceed ₹1 crore during the financial year.

What is the TDS rate under Section 194N?

The standard rate is 2% once the applicable threshold is exceeded. For specified non-filers, the rate can increase to 5% when aggregate withdrawals exceed ₹1 crore.

What is the ₹20 lakh limit?

The ₹20 lakh threshold applies to persons who have not filed income-tax returns for all three prescribed preceding assessment years, where the relevant return-filing due dates have expired.

Does the ₹1 crore limit apply separately to each bank?

No. Cash withdrawals from one or more accounts are considered for Section 194N purposes.

Who deducts TDS under Section 194N?

The bank, co-operative bank or post office from which the cash is withdrawn is responsible for deducting the applicable TDS.

Is TDS under Section 194N applicable to every cash withdrawal?

No. TDS applies only when the prescribed conditions and thresholds are met, and certain persons and transactions are specifically excluded.

Conclusion

Section 194N is an important provision for individuals, businesses and other taxpayers making substantial cash withdrawals. For FY 2026-27, taxpayers who have filed the prescribed income-tax returns generally face the ₹1 crore threshold, while specified non-filers may become subject to TDS from ₹20 lakh of aggregate cash withdrawals.

The applicable rate can be 2% or 5%, depending on the amount withdrawn and the taxpayer’s ITR filing history. Co-operative societies also have a higher ₹3 crore threshold in the circumstances specified under the law.