Overview
One of the most sweeping reforms in India's tax history is now upon us. From 1 April 2026, the provisions relating to TDS on cash withdrawals u/s 194N continue under the new Income Tax Act, 2025 as Section 393(3) but with an important change in the manner of tax deduction.
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the bank must deduct TDS on the entire cumulative cash withdrawal amount, calculated right from the very first rupee withdrawn during the year.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| Total Withdrawn | ₹1,10,00,000 | ₹1,10,00,000 |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.
- TDS Certificate: You will receive a TDS certificate (Form 16A) 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.
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