TDS on Cash Withdrawal Under Section 194N — Rules, Rates, Refund Guide
Large cash withdrawals now attract TDS under Section 194N of the Income-tax Act. This rule has caused a lot of confusion — who it applies to, how much tax is deducted, whether it’s final, and how to claim a refund. This article explains Section 194N from first principles, with examples, practical steps to avoid surprises, how to claim refunds, and what to keep in your records.
Quick summary (if you’re in a hurry)
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What it is: TDS on cash withdrawals from banks, co-op banks and post offices.
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Basic trigger: When your aggregate cash withdrawals in a financial year exceed certain thresholds. The rate and threshold depend on whether you filed income-tax returns (ITRs) for the previous 3 assessment years.
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Typical rates: 0%, 2% or 5% depending on thresholds and past ITR filing.
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Is it refundable? Yes — if your total tax liability is less than the TDS, you can claim credit/refund by filing your ITR.
1) Why Section 194N exists
Section 194N was introduced to discourage very large cash transactions and promote digital payments. It also improves tracking of high-value cash flows to curb tax-evasion and black money. Practically, banks/post offices are required to deduct TDS at source when a person’s cash withdrawals in a year cross set limits.
2) Who must deduct TDS under 194N?
Deductors: Every banking company, cooperative bank or post office that makes cash payments (withdrawals) is required to deduct TDS under 194N when the prescribed conditions are met. The onus to deduct lies with the bank/post office; the account holder is the “recipient” from whose withdrawals TDS may be deducted.
3) Thresholds & rates — the rules (clear table)
| Filing history (last 3 AYs) | When TDS applies on aggregate withdrawals in FY | TDS rate (on amount above threshold) |
|---|---|---|
| Filed ITR in any/any one of last 3 AYs | Above ₹1 crore in a FY → TDS @ 2% on amount exceeding ₹1 crore. | 2% |
| Not filed ITR for all of last 3 AYs | Above ₹20 lakh in a FY → TDS @ 2% on amount between ₹20 lakh and ₹1 crore; 5% on amount > ₹1 crore. | 2% / 5% |
Important clarifications
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The threshold is aggregate cash withdrawals from one or more accounts (savings/current) in the same bank (or same post office/co-op bank) during a financial year. The bank adds up all cash withdrawals and decides whether the aggregate crosses thresholds.
Different banks treat their accounts separately — the 194N calculation is typically per bank / post office / co-op. If you withdraw ₹80 lakh from Bank A and ₹50 lakh from Bank B, each bank calculates 194N on its own aggregate. (Check with your bank for their internal process.)
5) Is 194N TDS final tax or adjustable?
Not final. 194N is TDS — an advance collection of tax. It is adjustable against your total tax liability for the year: you report the TDS in your ITR (Form 26AS / AIS will show it), and if your total tax liability is lower than total TDS (including 194N amount), the excess becomes a refund. If your final liability is higher, you pay the balance.
6) How to check TDS deducted under 194N
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Form 26AS / AIS: TDS entries (including 194N) appear in your Form 26AS and Annual Information Statement (AIS). Check these on the IT e-filing portal to confirm the TDS amount and the deductor’s TAN/PAN.
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Bank statement & cash withdrawal slips: The bank will show a TDS line in your statement if it deducted 194N. Ask the branch for a certificate/TD R (TDS certificate) or challan details if needed.
7) How to claim the TDS refund (step-by-step)
Step 1 — File your ITR for the relevant FY
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Report your total income and claim deductions/benefits as applicable. Include the TDS amount (Form 26AS auto-fetches it on the portal).
Step 2 — Verify Form 26AS / AIS
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Ensure the 194N TDS entry matches the bank’s deductee challan/TDS statement. If there’s a mismatch, raise it with the bank immediately and ask them to file correction statements (Form 26Q/Form 27Q corrections). Note timelines for corrections.
Step 3 — Submit ITR and e-verify
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After filing and e-verifying, the Income Tax Department processes refunds. If the TDS > tax liability, you’ll get a refund credited to your pre-validated bank account.
Step 4 — Follow up if refund is delayed
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Use CPC refund status on the income-tax e-filing portal. If mismatch issues arise, contact your bank (deductor) or the tax department with documentary proof. Recent court rulings emphasize that refunds cannot be withheld simply because of TDS mismatch without proper inquiry — but resolution may take time.
8) Common practical issues & how to avoid them
a) Mismatch in Form 26AS
Banks sometimes file TDS entries with wrong PAN or wrong deductor details. That blocks credit in your Form 26AS. Tip: Check Form 26AS quarterly. If a TDS is missing/mismatched, lodge correction requests promptly with the bank so they can file a correction statement.
b) Multiple bank accounts
Each bank calculates 194N on withdrawals from its books. If you anticipate large cash needs, spread withdrawals carefully and coordinate with your bank. Ask your bank to project whether aggregate withdrawals will trigger 194N. (Banks can provide expected TDS calculations if you inform them in advance.)
c) Cash withdrawals for business / property purchases
If you withdraw cash for legitimate business reasons or property payments, you might still face 194N. Keep invoices, receipts, and the purpose documented — this helps when claiming refunds and responding to queries.
d) No ITR filings change thresholds
If you have missed filing ITRs, your threshold becomes much lower (₹20 lakh). It’s good practice to file returns even if income is below taxable limits — it helps maintain the higher threshold for 194N and reduces the risk of higher TDS.
9) Is TDS under 194N refundable even if withdrawal isn’t “income”?
Yes. Although a cash withdrawal itself is not income, the law treats the tax deducted as TDS credit for the taxpayer. If your overall tax liability for the year is lower than the TDS deducted (including 194N), you may claim refund by filing your ITR and getting credit for the TDS shown in Form 26AS/AIS. There have been interpretational debates earlier about “creditability” because withdrawal isn’t income, but administrative practice and guidance allow refund/credit via ITR.
10) Practical checklist before you withdraw large cash
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File ITRs regularly (maintain proof) so your threshold remains ₹1 crore.
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Inform the bank in advance if you need large cash — banks sometimes offer alternatives (banker’s cheque, NEFT/RTGS) that avoid 194N.
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If you must withdraw cash, request the bank to provide an estimate of possible 194N TDS and obtain written acknowledgement of the withdrawal purpose.
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Keep invoices/receipts for large cash uses (property purchase receipts, contract invoices).
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Check Form 26AS after the financial year for TDS credits and follow up immediately for mismatches
11) What to do if bank deducted 194N in error
If the bank wrongly deducted 194N (wrong PAN, wrong calculation, or you legitimately should have been exempt), ask the bank to:
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Reverse/deduct correct TDS (if within their power).
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Or file a correction statement (TDS correction) with the Income Tax Department so the correct TDS credit appears in Form 26AS.
If the bank refuses, escalate to the bank’s grievance cell and then to the banking ombudsman. Keep all communication in writing.
12) FAQs (short answers)
Q1 — Does 194N apply to ATM withdrawals?
Yes. Cash withdrawals from ATMs and counters are included in the aggregate for the FY. The bank will tally all cash outflows and apply 194N rules when thresholds are crossed.
Q2 — Is cheque withdrawal included?
No — withdrawals by cheque via RTGS/NEFT transfers are not “cash” withdrawals. 194N targets physical cash payments. (But if you withdraw cash after encashing a cheque, that physical cash withdrawal counts.)
Q3 — Does 194N apply to withdrawals by someone else using my cheque?
If the cash is paid out from your account, it counts towards your aggregate withdrawals; so yes. The bank’s records determine deductibility.
Q4 — How quickly will I get refund after filing ITR?
Typically within 7–45 days of e-verification, barring mismatches or compliance queries. If Form 26AS has mismatches, refund may be delayed until corrections are filed.
13) Closing thoughts (practical mindset)
Section 194N is a compliance-and-behavior tool — it nudges people toward digital payments and reduces big cash flows. For most salaried citizens and small withdrawals it won’t matter. But if you deal in large cash (business owners, property deals, cash-intensive trades), plan ahead:
File ITRs timely to keep higher thresholds;
Use bank transfers or banker’s cheques for big payments;
Keep excellent records;
Check Form 26AS; and
Don’t panic — TDS is refundable when not due as final tax.