TDS on Cash Withdrawal: Section 194N / Section 393 Guide for AY 2026-27

TDS on Cash Withdrawal: Section 194N / Section 393 Guide for AY 2026-27

Most TDS provisions require a business to deduct tax before paying a vendor or employee. Section 194N works differently: here, the bank or financial institution deducts TDS when you withdraw cash from your own account. The logic is to disincentivise large cash transactions and improve the audit trail for high-value withdrawals.

If you run a business that regularly draws cash for payroll, raw material purchases, or daily operations, this provision directly affects your working capital. Understanding the thresholds, rates, and credit mechanism is essential before it shows up unexpectedly in your bank statement.

Who Deducts TDS and From Whose Account

TDS under Section 194N is deducted by:

• Scheduled commercial banks (SBI, HDFC, ICICI, etc.)
• Cooperative banks
• Post office savings bank accounts

The deduction is made from the account holder's own cash withdrawal (from savings accounts, current accounts, or any other account held with the bank). This applies to individuals, Hindu Undivided Families (HUFs), firms, companies, and any other person.

The bank does not deduct TDS on every withdrawal. It tracks the aggregate cash withdrawals you make from all accounts held with it in a financial year and deducts TDS only when the cumulative total crosses the applicable threshold.

Threshold and TDS Rates: Regular ITR Filers

For persons who have filed ITR in at least one of the three previous financial years (FY 2022-23, FY 2023-24, or FY 2024-25 for AY 2026-27):

The threshold is per bank, not per account. If you have three accounts in the same bank and withdraw ₹40 lakh, ₹35 lakh, and ₹30 lakh from each, the aggregate is ₹1.05 crore. TDS of 2% on ₹5 lakh (the excess) = ₹10,000 will be deducted.

If you have accounts in two different banks and withdraw ₹80 lakh from each, neither bank sees the total. Each bank applies the threshold independently. No TDS is deducted by either.

Threshold and TDS Rates: Non-Filers

If you have not filed ITR in any of the last three financial years, the bank applies a stricter threshold under the proviso to Section 194N:

The bank identifies non-filers by checking with the Income Tax Department's database. Banks are required to verify ITR filing status before each large-value withdrawal or periodically. If the system flags you as a non-filer, the lower threshold applies for the rest of that financial year.

Filing a backdated ITR does not immediately reset your status at the bank. The bank will apply the non-filer rates until it receives an updated flag from the Income Tax Department's system.

Cooperative Societies: Higher Threshold

Cooperative societies often handle large-volume cash transactions with farmer members and rural suppliers. Recognising this, the Finance Act 2023 raised the threshold for cooperative societies:

This benefit applies only to entities registered as cooperative societies under the relevant cooperative societies Act. LLPs and private companies do not qualify for the ₹3 crore threshold.

What Counts as a Cash Withdrawal

Section 194N applies to any amount received in cash from the bank. This includes:

• Over-the-counter cash withdrawal using a withdrawal slip or cheque
• Demand drafts encashed in cash (where the proceeds are handed over in notes)
• Cash received against a self-cheque

It does not apply to:

• NEFT, RTGS, IMPS, UPI transfers (these are electronic, not cash)
• Demand drafts where the proceeds are credited to another bank account
• Withdrawal by the Central Government, State Governments, or entities notified by the Central Government (e.g., the Reserve Bank of India)
• Business correspondents of banks
• White-label ATM operators
• Cash replenishment agencies for ATMs

Section 393 Under the Income Tax Act 2025

From April 1, 2026, the Income Tax Act 2025 replaced the Income Tax Act 1961. Section 194N has been consolidated into the unified Section 393 TDS schedule. The rates, thresholds, and applicability provisions are unchanged. If you are filing a TDS return or looking up the provision in the new Act, refer to the Section 193/393 framework. TDS payment codes for Section 194N under the old Act have corresponding codes in the new Act's payment code structure. See our guide on new TDS payment codes for FY 2026-27.

Worked Example: Regular Filer

Situation: Raj runs a hardware trading business as a sole proprietor. He holds a current account with Axis Bank. During FY 2025-26, he withdraws cash on the following dates:

Raj filed his ITR for FY 2022-23, so he is a regular filer. The ₹1 crore threshold applies.

• At the December 2025 withdrawal: cumulative crosses ₹1 crore for the first time. The bank deducts TDS at 2% on the excess: 2% × ₹5 lakh = ₹10,000.
• At the January 2026 withdrawal: ₹15 lakh is fully above the ₹1 crore threshold. TDS = 2% × ₹15 lakh = ₹30,000.

Total TDS deducted for the year: ₹40,000. This appears in Raj's Form 26AS and AIS under the TDS section with Axis Bank as the deductor, Section 194N as the category.

When Raj files his ITR for AY 2026-27, he claims ₹40,000 as TDS credit under Schedule TDS-2 (non-salary TDS). This reduces his tax liability by ₹40,000. If his final tax liability is less than ₹40,000, he receives a refund for the excess.

How TDS Appears in Form 26AS and AIS

The bank reports the TDS deducted under Section 194N in its quarterly TDS return (Form 26Q). This flows through to:

• Form 26AS (Part A): Shows the bank as deductor, your PAN as deductee, the amount of cash withdrawn above the threshold, and TDS deducted.
• AIS (Annual Information Statement): Shows the same data under the "TDS / TCS Information" section.

Before filing your ITR, cross-check these entries against your bank statement. Discrepancies (bank deducted TDS but Form 26AS does not show it) usually mean the bank has not yet filed its quarterly return. The credit should appear within 4–6 weeks of the quarter end.

How to Claim TDS Credit in Your ITR

When filing ITR for AY 2026-27:

1. Go to Schedule TDS-2 (TDS on income other than salary).
2. Enter the bank's TAN number, the amount of cash withdrawal on which TDS was deducted, and the TDS amount.
3. These values should pre-populate from your pre-filled ITR data if your PAN is correctly linked and Form 26AS is updated.
4. The TDS credit flows to the tax computation sheet and reduces your total tax payable.

If you have excess TDS (TDS deducted exceeds your final tax liability), claim a refund by entering your bank account details correctly in the refund section. Refunds for AY 2026-27 are typically processed within 30–60 days of ITR filing if e-verified promptly.

How to Avoid or Reduce TDS on Cash Withdrawals

If TDS on cash withdrawals is affecting your working capital, consider the following:

1. File your ITR every year. The most effective step. Regular filing keeps you at the ₹1 crore threshold. Non-filing pushes the threshold down to ₹20 lakh and the TDS rate up to 5% above ₹1 crore.

2. Spread withdrawals across multiple banks. Each bank applies the threshold independently. If you spread large withdrawals across two or three banks, each bank's aggregate may stay below ₹1 crore. This is legitimate tax planning, not evasion.

3. Shift to electronic payments wherever possible. NEFT, RTGS, IMPS, and UPI transfers are not subject to Section 194N TDS. Paying suppliers and employees electronically eliminates the TDS trigger entirely.

4. Apply for lower TDS under Section 197. If your actual income tax liability for the year will be significantly lower than the TDS being deducted (or if you have large business losses), apply to your Assessing Officer for a certificate under Section 197 authorising the bank to deduct TDS at a lower rate or nil rate. The bank will apply the certificate rate once issued.

Tax Garden Handles Your ITR TDS Reconciliation

Tax Garden's filing plans reconcile every TDS entry in your Form 26AS and AIS (including Section 194N cash withdrawal TDS) against your actual income, claim all credits in the correct ITR schedule, and flag any bank-reported TDS that has not yet reflected in the Government's system. We ensure you neither overpay nor miss a refund.

For related topics, see our guides on the TDS rate chart for FY 2026-27, TDS/TCS changes for FY 2026-27, new TDS payment codes under the Income Tax Act 2025, TDS on interest under Section 194A, and the Section 393 mapping guide.

Frequently Asked Questions

Does the ₹1 crore threshold reset every financial year?

Yes. The aggregate cash withdrawal limit is calculated fresh each financial year from April 1. The bank resets its running total on April 1 every year. TDS deducted in the previous year has no bearing on the new year's threshold.

I have accounts in three different branches of the same bank. Is the threshold per branch or per bank?

The threshold is per bank (all branches combined), not per branch. The bank's core banking system aggregates withdrawals across all your accounts in all branches under the same PAN. If your total crosses ₹1 crore across all branches of one bank, TDS is deducted on the excess regardless of which branch you withdrew from.

My bank deducted TDS but I cannot see it in Form 26AS. What do I do?

Banks file quarterly TDS returns. If TDS was deducted in Q3 (October–December), it will typically appear in Form 26AS after the bank files its Q3 return (due January 31). If it does not appear within 6–8 weeks of the quarter end, contact your bank branch with the TDS certificate (Form 16A or acknowledgement). You can also raise a grievance on the TRACES portal. Do not skip claiming the credit in your ITR; file and request the credit. The department can verify it against the bank's return.

Is Section 194N TDS deducted on cash withdrawals for business purposes also?

Yes. Section 194N does not distinguish between personal and business withdrawals. Any cash withdrawal from a bank account (whether from a personal savings account or a business current account) is subject to TDS once the ₹1 crore (or lower non-filer) threshold is crossed. Businesses typically claim the TDS credit when filing their ITR or in advance tax computations.

My proprietorship business has both a personal savings account and a current account in the same bank. Are these aggregated?

Yes, if both accounts are linked to the same PAN. Banks aggregate cash withdrawals across all accounts under the same PAN at the same bank. Withdrawals from your personal and business accounts at the same bank are counted together toward the ₹1 crore threshold.

Can I get a refund of TDS deducted under Section 194N if I have no taxable income?

Yes. TDS under Section 194N is advance tax, not a final charge. If your total tax liability after accounting for all income, deductions, and exemptions is zero (or lower than the TDS deducted), you are entitled to a full or partial refund. File your ITR, claim the TDS credit in Schedule TDS-2, and the excess will be refunded by the Income Tax Department after processing.

Sources

This guide is verified against Section 194N of the Income Tax Act, 1961 (TDS on cash withdrawals, inserted by Finance Act 2019, amended by Finance Acts 2020 and 2023), Section 393 of the Income Tax Act, 2025 (consolidated TDS framework effective April 1, 2026), and CBDT notifications on non-filer threshold applicability. Cooperative society threshold of ₹3 crore confirmed from Finance Act 2023 amendment and ClearTax, Tax2win, and BajajFinserv reference materials. TDS rates (2% regular, 2%/5% non-filer) verified against incometax.gov.in and TaxGuru analysis as of May 2026. The worked example uses the standard 2% rate applicable to regular ITR filers. All figures should be verified against incometax.gov.in before applying to specific transactions.