TDS ON CASH WITHDRAWAL

Overview of Section 194N

Section 194N of the Income Tax Act aims to discourage large cash withdrawals and promote a cashless economy. It mandates TDS on cash withdrawals exceeding ₹1 crore in a financial year, applicable to the total or aggregated amount withdrawn from a bank account. This section is applicable to the following entities making withdrawals –

  • An individual
  • A Hindu Undivided Family (HUF)
  • A company
  • A partnership firm or an LLP
  • An Association of Person (AOPs) or Body of Individuals (BOIs)

TDS Rates (Thresholds):

TDS rates and deduction limit depend on whether the taxpayer has filed their ITR.

For those who have filed ITR:

  • 2% on cash withdrawals exceeding ₹1 crore

For non-filers:

  • 2% on cash withdrawals between ₹20 lakh and ₹1 crore.
  • 5% on cash withdrawals exceeding ₹1 crore.
Withdrawal in a F.Y.             TDS Rates (If ITR filed for last 3 years)               TDS Rates  (If ITR for last 3 years NOT filed)
Up to ₹ 20 lakhs                     Nil                            Nil
₹ 20 lakhs – ₹ 1Cr                  Nil                            2%
Above ₹ 1Cr                  2%                            5%

Who is Responsible for Deducting TDS?

The person (payer) making the cash payment will have to deduct TDS under Section 194N.

  • Any bank (private or public sector)
  • A co-operative bank
  • Post office

 These institutions must deduct TDS at the time of cash withdrawal when the amount exceeds the specified limits.

 When is Section 194N not applicable?

There are certain categories of persons (payee) to whom the provision of this section will not apply.

  • Central and state governments
  • Banks (private or public)
  • Cooperative banks
  • Any white label ATM operator of any bank
  • Business correspondents of banks
  • Agricultural Produce Market Committee (APMC) agents making payments to farmers
  • Any other person notified by the government

Rate of TDS and Threshold for deduction

 Example with ITR Filed

 If an individual withdraws a total of ₹1.4 crore in a financial year, the calculation

 would be as follows:

  • Total withdrawal – 1.4 crores
  • Less: Threshold: 1 crore
  • Amount exceeding Rs 1 crore – 40 lakhs
  • TDS @ 2% – 80,000

Rate of TDS and Threshold for deduction

Example without ITR Filed

If an individual has not filed their ITR for three years the TDS needs to be deducted as follows

  • If the cash withdrawal is > Rs 20 lakhs and <= Rs 1 crore – TDS is 2%
  • If the cash withdrawal is > Rs 1 crore – TDS is 5%
  • (> Rs 20 lakhs and <= Rs 1 crore )   (Rs 80 lakhs * 2%) = Rs 1,60,000
  • (> Rs 1 crore)     (Rs 40 lakhs * 5%) = Rs 2,00,000
  • Total TDS to be deducted by the bank is (1,60,000 + 2,00,000) =3,60,000

Rate of TDS and Threshold for deduction

Cash withdrawn from different banks

BankTotal cash withdrawn during the FY 2023-24 (in Rs)
Axis BankRs. 60 Lakh
SBI BankRs. 50 Lakh
ICICI BankRs. 10 Lakh

In the above example, No bank is required to deduct TDS under Section 194N as the limit of Rs 1 crore is not exhausted in any of the banks.

However, if you withdraw cash more than Rs 1 crore from SBI bank, then SBI bank is liable to deduct TDS at 2% or 5%, as the case may be.

Can we Claim a Refund of TDS Deducted u/s 194N?

Yes, you can claim a refund of the TDS deducted under Section 194N of the Income Tax Act. 

To claim a refund, you must file your income tax return for the financial year in which the TDS was deducted.

Eligibility for Refund

  • If your income is below the basic exemption limit, you can claim a full TDS refund.
  • If your tax liability is less than the TDS deducted, the excess amount can be refunded.

*Courtesy Genzcfo

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