Overview
From 1 April 2026, TDS on cash withdrawals undergoes a major change - the new Section 393 under Income-tax Act, 2025 replaced the earlier Section 194N. Under the new Act if withdrawal limit is crossed, then TDS will apply on the entire cash withdrawal amount instead of only the amount exceeding the threshold
The Big Shift in TDS Deductions: "Excess" vs. "Entire" Amount
The most transformative change under Section 393 isn't the tax rate itself, it's the base on which tax is calculated once you cross the threshold.
- Under the Old Act (until March 31, 2026): TDS was levied only on the portion of cash withdrawals that exceeded the specified limit.
- Under the New Act (from April 1, 2026 onwards): The moment you breach the threshold, the bank must deduct TDS on the entire cumulative cash withdrawal amount, calculated right from the very first rupee withdrawn during the year.
Example: Old Vs New Deduction Rule for Cash Withdrawals
For regular Income Tax Return (ITR) filers, the threshold stands at ₹1 Crore per bank per financial year, with a TDS rate of 2%. Now, see how the numbers change if you withdraw ₹1.10 Crore:
| Aspect | Aspect Old Rules (Sec 194N) | New Rules (Sec 393) |
| Total Withdrawn | ₹1,10,00,000 | ₹1,10,00,000 |
| How TDS is Applied | 2% only on the excess (₹10 Lakhs) | 2% on the entire ₹1.10 Crore |
| TDS Deducted | ₹20,000 | ₹2,20,000 |
Thresholds Based on ITR Filing Status
Your applicable TDS rates and limits under Section 393 are determined entirely by your tax compliance record over the preceding three years:
For Regular ITR Filers
- Threshold: ₹1 Crore (₹3 Crores for Co-operative Societies).
- Rate: 2% on the entire amount once the threshold is breached.
For Non-Filers (Those who have not filed ITR in the last 3 years)
To penalize non-compliance, the government has drastically reduced the threshold:
- Withdrawals between ₹20 Lakhs and ₹1 Crore: 2% TDS on the entire amount.
- Withdrawals exceeding ₹1 Crore: 5% TDS on the entire amount.
New Payment Codes for TDS on Cash Withdrawals 2026
For deductors, including banks, co-operative societies, and post offices, new payment codes under Section 393 will now be used in TDS returns and back-office classification.
| New Payment Code | Section 393 Mapping | Deductee Type | Typical Use Case |
| 1064 | Section 393(3), Table Sl. No. 5.D(a) | Co-operative society as recipient | High cash withdrawals by cooperative societies. |
| 1065 | Section 393(3), Table Sl. No. 5.D(b) | Any person other than a cooperative society | Regular individuals, firms, and companies withdrawing cash above prescribed limits. |
Important Points to Remember
- Exempt Entities: The government, banks, post offices, and authorized business correspondents are exempt from this TDS provision.
- No PAN: If you fail to provide your PAN, TDS will be deducted at the higher rate of 20% under Section 206AA.
- Returns: Banks are required to file quarterly TDS statement Form 140 to report tax deducted u/s 194N on cash withdrawals made to resident taxpayers.
- TDS Certificate: You will receive a TDS certificate (Form 131) from the bank or post office for the tax deducted.
- Claiming Credit: You can claim credit for this TDS while filing your Income Tax Return.
Conclusion
The Income-tax Act, 2025 restructures the TDS provisions, with Section 393 serving as a consolidating provision that sets out various TDS payments and their corresponding tables. Within this revamped framework, the cash withdrawal TDS earlier covered under Section 194N has been reassigned with a new mapping, including specific payment codes for reporting purposes. Under the post-restructuring scheme:
- Cash withdrawals and similar payments made by banks or post offices are now referenced in the Section 393(3) tables, complete with dedicated serial numbers and payment codes.
- The economic parameters thresholds, rates, and exclusions continue to mirror the earlier Section 194N provisions, unless modified by subsequent Budget announcements or Rules.
FAQs
What is TDS on cash withdrawal under Section 194N?
Under Section 194N, TDS has to be deducted from a person in a financial year if cash withdrawal exceeds ₹20 lakh or ₹1 crore depending on the taxpayer's ITR filing status.
Who deducts TDS on cash withdrawals?
Private, public, co-operative banks, and post offices deduct TDS at the time of cash withdrawal when it crosses ₹20 lakh or ₹1 crore threshold in a financial year.
Who is exempt from TDS on cash withdrawal under 194N?
The Central/State Government, banks, post offices, certain RBI-authorized entities and other notified persons are exempt.
Since when is Section 194N applicable?
Section 194N has been applicable from 1st September 2019 (FY 2019-20).
What is the TDS rate on cash withdrawals?
The TDS rate on cash withdrawals are:
- ITR filed (all or any of the last 3 AYs): 2% on withdrawals above ₹1 crore
- ITR not filed: 2% on withdrawals above ₹20 lakh, and 5% above ₹1 crore
Why did I get a bank SMS saying "tax deducted at source u/s 194N"?
This means your bank has deducted TDS as your withdrawals crossed the ₹20 lakh or ₹1 crore limit for the year under Section 194N. You can check the deducted amount in your Form 26AS and claim credit for it while filing your ITR.
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