Section 194N of Income Tax – TDS on cash withdrawal

Updated: 19-01-2024 06:16:43 AM

In order to discourage cash usage and promote digital payments, Finance Minister Nirmala Sitharaman introduced Section 194N in the Union Budget 2019. According to this new section, TDS on cash withdrawals at 2% will be deducted if cash in excess of Rs. 1 crore is withdrawn in a particular FY. The following are some key details of the new section is aimed to promote digital payments through this article.

What is Section 194N?

As per Section 194N, introduced in Union Budget 2019, 2% Tax Deducted at Source will be deducted on annual cash withdrawals in excess of Rs. 1 crore with effect from 1st September, 2019. It should be noted that the applicable Rs. 1 crore limit / FY is set with respect to per bank/cooperative society/post office account. 

In other words, if you have multiple accounts with the same bank, then the total amount of cash withdrawn will be considered for TDS deduction. However, if you have multiple accounts with different banks, then the TDS limit for each bank will be Rs. 1 crore. For example, if you withdraw Rs. 1 crore from 2 different banks, then there will be no TDS deducted on the total amount of cash withdrawn in that particular FY (Rs. 2 crore).

What is the purpose of Section 194N?

Section 194N is introduced to promote digital payments and reduce the use of cash. Moreover, it will help the government to keep track of cash flow and hence check the generation of unaccounted wealth. 

Who will deduct TDS under Section 194N?

As per Section 194N of the Income Tax Act, every person making cash payment in excess of Rs. 1 crore in a FY to a recipient has to deduct TDS at the rate of 2%.

The list of persons who can deduct TDS as per provisions of this section include:

• Any bank (public or private)
• Any cooperative bank
• Any post office

Who are liable to pay TDS on cash withdrawals u/s 194N?

TDS deduction on cash withdrawal u/s 194N is applicable to all taxpayers, including

• An Individual
• A Hindu Undivided Family (HUF)
• A Company
• A partnership firm or an LLP
• A local authority
• An Association of Person (AOPs) or Body of Individuals (BOIs)

Are there any exemptions to TDS on cash withdrawal u/s 194N?

Yes, there are certain exemptions mentioned in Section 194N, these include:

• The Government
• Banks (public and private)
• Cooperative banks
• Any business corespondent of a bank (including cooperative bank)
• Any white-label ATM operator of a banking company
• Other person(s) as notified in the Official Gazette

What is the rate of TDS under Section 194N?

TDS will be deducted at the rate of 2% on cash withdrawals in excess of Rs. 1 crore in a FY (w.e.f. September 1st, 2019).

For example: If you withdrew Rs. 1.5 crore from ABC bank during a financial year, then the bank will deduct TDS at the rate of 2% on the amount exceeding Rs. 1 crore. The calculation is as follows:

TDS = 2% of the amount over Rs. 1 crore

   = 2% of (Rs. 1.5 crore – Rs. 1 crore)

   = 2% of Rs. 50 lakh

   = Rs. 100,000 i.e. Rs. 1 lakh

Know more about other TDS Rates

What is TDS credit u/s 194N?

As per CBDT notification, TDS credit can be claimed by the taxpayer from whose account TDS on cash deposits was deducted for the applicable financial year.

For example: Suppose your total tax liability for a particular FY is Rs. 10,000. The amount of TDS deducted on the cash withdrawal in excess of Rs. 1 crore is Rs. 1000. In this case, you can claim the TDS deducted (Rs. 1000) as tax credit. That is, you will have to pay only Rs. 9000 (Rs. 10,000 – Rs. 1000) as the total tax for that FY.