Overview
Starting 1 April 2026, under the Income Tax Act, 2025 (applicable for FY 2026-27), TDS on cash withdrawals is regulated to promote digital transactions, with rules under Section 393 (or similar, replacing the old 194N). Generally, a 2% TDS applies on aggregate cash withdrawals exceeding Rs 1 crore annually, and 5% TDS applies if ITRs are not filed for the preceding three years (lower threshold of Rs 20 lakh may apply).
TDS on Cash Withdrawals
TDS on cash withdrawals is governed by Section 194N of the Income-tax Act. It requires banks, cooperative banks, and post offices to deduct tax when cash withdrawals exceed specified limits in a financial year. The aim is to discourage large cash transactions and improve transparency.
This provision applies to individuals, businesses, companies, and other taxpayers withdrawing large amounts of cash.
Applicability of TDS on Cash Withdrawals (From April 2026)
From FY 2026 - 27, the TDS rules largely continue under Section 194N unless amended by future budgets.
Threshold Limits and TDS Rates
| Cash Withdrawal in a Financial Year | TDS Rate |
| Up to Rs 1 crore | Nil |
| Above Rs 1 crore | 2% |
For taxpayers who have NOT filed ITR for the last 3 years
| Cash Withdrawal | TDS Rate |
| Up to Rs 20 lakh | Nil |
| Rs 20 lakh to Rs 1 crore | 2% |
| Above Rs 1 crore | 5% |
Who Deducts TDS?
TDS is deducted by:
- Public sector banks
- Private banks
- Cooperative banks
- Post offices
The deduction is made at the time of cash payment.
Exemptions from TDS Under Section 194N
TDS does NOT apply to withdrawals by:
- Government bodies
- Banks and cooperative societies
- Business correspondents
- White-label ATM operators
- Certain notified entities
These exemptions ensure operational ease for essential institutions.
Compliance under Section 194N
- Banks or post offices that deduct TDS, must be deposited with the government by the 7th of the next month.
- The deductor must file Form 26Q quarterly i.e., within the last date of following month of the quarter to report the TDS details.
FAQs
Is TDS deducted on every cash withdrawal?
No. It is deducted only after crossing the prescribed annual threshold.
Is the limit applicable per bank or per PAN?
The limit applies per bank, not PAN.
What happens if I withdraw cash from multiple banks?
Each bank calculates TDS separately.
Can I avoid TDS if my income is below the taxable limit?
No, but you can claim a refund while filing ITR.
Does TDS apply to savings and current accounts?
Yes, it applies to both.
Is this rule applicable to non-residents?
Yes, it applies to both residents and non-residents.
Can TDS be reduced through Form 15G or 15H?
No, these forms are not applicable for Section 194N.
What if I file ITR late?
You may be treated as a non-filer and face higher TDS.
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