Home > Income Tax > Section 194N

Section 194N: TDS on Cash Withdrawals from Bank or Post Office

Section 194N of the Income-tax Act, 1961 required banks, co-operative banks and post offices to deduct tax at source on cash withdrawals exceeding prescribed annual limits. The provision included higher TDS exposure for specified non-filers and a higher normal threshold for a recipient that is a co-operative society.

Current law from 1 April 2026: The Income Tax Act, 2025 reorganises this rule under Section 393. The ordinary cash-withdrawal rule appears in Section 393(3), Table Sl. No. 5: TDS is 2% on cash paid from one or more accounts above Rs. 1 crore, or above Rs. 3 crore where the recipient is a co-operative society, subject to the Act's exclusions and special rules.

Section 194N at a glance

Point	Rule
Person deducting tax	Banking company, co-operative society carrying on banking business, or post office
Normal threshold	Cash exceeding Rs. 1 crore during the year from one or more accounts maintained by the recipient with the payer
Co-operative society recipient	Normal threshold increased to Rs. 3 crore from 1 April 2023
Normal rate	2% on the amount above the applicable threshold
Specified non-filer threshold	Rs. 20 lakh under the special rule
Specified non-filer rates	2% on the applicable excess up to the higher threshold and 5% on the applicable excess beyond it, subject to the statutory rule
Time of deduction	At the time of cash payment
Current provision	Section 393 of the Income Tax Act, 2025

Who deducted tax under Section 194N?

The obligation was imposed on a banking company to which the Banking Regulation Act, 1949 applies, including covered banks and banking institutions; a co-operative society engaged in carrying on the business of banking; and a post office. The payer had to consider cash withdrawals from one or more accounts maintained by the recipient with it.

Normal TDS rule on cash withdrawal

For a recipient covered by the normal rule, tax was deducted at 2% when the aggregate cash paid during the previous year exceeded Rs. 1 crore. The deduction applied to the amount exceeding the threshold, rather than to the entire amount withdrawn.

With effect from 1 April 2023, where the recipient is a co-operative society, the normal Rs. 1 crore threshold was substituted by Rs. 3 crore. This higher threshold was introduced by the Finance Act, 2023.

Special rule for specified non-filers

Section 194N contained a stricter rule for a recipient who had not filed returns of income for all of the three relevant assessment years specified in the provision. In such a case, the cash-withdrawal threshold was reduced to Rs. 20 lakh.

For a non-filer other than a co-operative society, the provision prescribed 2% TDS for cash withdrawals above Rs. 20 lakh up to Rs. 1 crore and 5% for the amount above Rs. 1 crore. In applying the rule to a co-operative society recipient, the statutory Rs. 3 crore substitution must also be taken into account.

Payments excluded from Section 194N

The section did not apply to cash payments made to specified recipients, including:

the Government;
a banking company, a co-operative society engaged in banking, or a post office;
a business correspondent of a banking company or qualifying co-operative bank operating under Reserve Bank of India guidelines;
a white label automated teller machine operator of a banking company or qualifying co-operative bank operating under the relevant RBI authorisation; and
other recipients notified by the Central Government in consultation with the Reserve Bank of India, subject to the conditions of the notification.

The Central Government may also notify qualifying recipients for non-application or a reduced rate in circumstances authorised by the provision.

Income Tax Act, 2025: cash withdrawal TDS from 1 April 2026

From 1 April 2026, the Income Tax Act, 2025 applies. The ordinary cash-withdrawal provision is placed in Section 393(3), Table Sl. No. 5 because it is a payment category that can apply irrespective of the recipient's residential status. The payer continues to be a banking company, co-operative bank or post office.

For the ordinary rule, the rate is 2%. The threshold is Rs. 1 crore where the recipient is a person other than a co-operative society and Rs. 3 crore where the recipient is a co-operative society. Section 393 and its related no-deduction table and notes should be read together for current transactions.

Transition: Section 194N is the relevant historical reference for cash payments governed by the Income-tax Act, 1961. Cash payments made on or after 1 April 2026 are governed by the Income Tax Act, 2025, and the current Section 393 provision should be checked for the recipient and transaction.

Example of the normal rule

If a recipient other than a co-operative society withdraws an aggregate of Rs. 1.20 crore in cash from accounts maintained with the same covered bank during the relevant year, the ordinary rule applies to Rs. 20 lakh above the Rs. 1 crore threshold. At 2%, the basic TDS on that excess is Rs. 40,000, assuming no special non-filer or exemption rule changes the result.

Practical points

Aggregate cash withdrawals from one or more accounts of the recipient maintained with the same payer.
Identify whether the recipient is a co-operative society because the normal threshold differs.
Check the recipient's return-filing status where the special non-filer rule may apply.
Confirm whether the recipient falls within a statutory or notified exclusion.
Apply TDS only according to the threshold, rate and computation rule applicable to that category.
For cash payments from 1 April 2026, use the Income Tax Act, 2025 framework under Section 393.

Official references

This article is a general guide. Current thresholds, return-filing tests, notified exclusions, rates and compliance requirements should be verified for the particular tax year, recipient and transaction.