Section 194N: TDS on Cash Withdrawals Above ₹1 Crore
- Nimisha Panda
- Nov 18, 2025
- 9 min read
Section 194N of the Income Tax Act regulates cash withdrawals beyond prescribed limits to promote transparency and discourage unaccounted cash transactions. Introduced to drive the shift toward digital payments, this section requires banks, co-operative societies, and post offices to deduct TDS when withdrawals exceed ₹1 crore annually. Budget 2025 has refined thresholds, exemptions, and compliance processes, making it vital for both individuals and entities to stay informed. Understanding these provisions ensures seamless banking, accurate tax reporting, and full compliance under the latest regulations.
Table of Contents
Overview of Section 194N
Section 194N of the Income Tax Act, 1961, was introduced to discourage excessive cash transactions and promote the adoption of digital payment systems across India. It mandates banks, cooperative societies, and post offices to deduct Tax Deducted at Source (TDS) when an individual or entity withdraws cash exceeding the prescribed limits during a financial year. The section was brought into effect through the Finance Act, 2019, and continues to evolve through subsequent amendments and notifications. Its main objective is to reduce cash circulation in the economy and curb the generation of black money. This regulation also encourages taxpayers to maintain transparency in financial dealings by using traceable, digital channels for high-value transactions.
Key Provisions and TDS Thresholds for FY 2025
Under the latest Budget 2025 refinements, TDS under Section 194N is deducted on cash withdrawals exceeding ₹1 crore during a financial year. The rate of deduction depends on the taxpayer’s compliance status with income tax filing. For individuals or entities who have filed their income tax returns for the last three assessment years, TDS is levied at 2% on the amount exceeding ₹1 crore. However, for those who have not filed returns for the last three years, the TDS rate increases to 5% once withdrawals surpass ₹1 crore. Cooperative societies enjoy a higher threshold of ₹3 crore for cash withdrawals, provided that they submit the necessary documents and comply with tax filing requirements. These differential rates are designed to reward compliance and penalize non-filers, reinforcing the importance of timely return submission.
Exemptions Under Section 194N
Certain entities and organizations are exempt from the applicability of Section 194N. These include the Government of India, state governments, banks, cooperative banks engaged in banking activities, post offices, and business correspondents acting on behalf of banks. Additionally, exemptions extend to white-label ATM operators and entities specifically notified by the government, such as diplomatic missions, consulates, and international organizations. A recent amendment effective from December 1, 2024, further broadened this list to include foreign representations, UN agencies, and other international bodies recognized by the government. These exemptions ensure that essential financial and diplomatic operations are not hindered by TDS requirements.
How TDS on Cash Withdrawals Works
Banks and post offices are responsible for tracking cash withdrawals across all accounts linked to a single PAN. Once the cumulative withdrawals in a financial year exceed the threshold, TDS is automatically deducted at the applicable rate—2% or 5%, depending on the taxpayer’s filing status. The deduction applies only to the amount exceeding the prescribed limit, not the entire withdrawal. For example, if a taxpayer has filed ITRs and withdraws ₹1.2 crore in cash, TDS will apply only to ₹20 lakh at 2%. The deducted TDS is then reported to the Income Tax Department and can be viewed by the taxpayer in Form 26AS or AIS. This process ensures transparency and simplifies tracking of large cash transactions for compliance purposes.
Latest Notifications and 2025 Government Updates
The Central Board of Direct Taxes (CBDT) has issued several notifications refining the scope and applicability of Section 194N. One major update effective December 2024 exempts foreign representations, diplomatic missions, and UN agencies from TDS deduction. Budget 2025 reinforced the section by reiterating its role in promoting a digital economy and discouraging excessive cash usage. Additionally, the government has clarified that the threshold limits apply per PAN and not per account, ensuring that withdrawals from multiple accounts under the same PAN are aggregated. Some banks have also introduced automated alerts to inform customers when they approach the TDS threshold, helping users manage withdrawals effectively.
How to Comply and Avoid Higher TDS Rates
To prevent unnecessary TDS deductions, taxpayers should file their income tax returns regularly and maintain updated KYC details with their banks. Submitting ITR-V acknowledgment or other filing proof helps banks verify compliance status and apply the correct TDS rate. Opting for digital transactions—such as UPI, NEFT, RTGS, or online fund transfers—can help stay below cash withdrawal limits and avoid tax deductions. If excess TDS is deducted, it can be claimed as a refund while filing the annual income tax return. Platforms like TaxBuddy simplify this process by automatically identifying refund eligibility and assisting users in claiming the deducted amount efficiently through AI-driven filing support.
Bank Account Documentation for High-Value Transactions
When handling high-value cash transactions, banks require detailed documentation for compliance with KYC and anti-money laundering (AML) norms. Individuals must provide valid identification such as PAN, Aadhaar, passport, or voter ID, along with proof of address. For businesses, entities like partnerships, companies, and HUFs must submit additional documents, including the Memorandum and Articles of Association (MOA/AOA), partnership deeds, and HUF declarations. Many banks now offer digital onboarding through video KYC to streamline account opening and verification for customers engaging in large-scale financial transactions. Ensuring that all identification and address details are accurate facilitates smooth account operations and prevents transaction delays or compliance issues.
Key Takeaways and Compliance Checklist
Section 194N encourages transparent financial practices by imposing TDS on large cash withdrawals while incentivizing regular ITR filing. To stay compliant:
Monitor total annual cash withdrawals across all accounts linked to a PAN.
File ITRs for at least the last three assessment years to benefit from lower TDS rates.
Maintain updated KYC and PAN details with banks or post offices.
Use digital payment modes to minimize cash usage and avoid exceeding limits.
Claim refunds for excess TDS during annual income tax return filing. Compliance with these steps not only reduces tax liability but also ensures a smooth and transparent banking experience.
Conclusion
Section 194N acts as a significant measure to discourage large-scale cash dealings and strengthen India’s digital economy. It aligns with the government’s goal of enhancing traceability and accountability in financial transactions. By maintaining regular ITR filings and opting for digital payment systems, taxpayers can easily stay compliant and avoid unnecessary deductions. For seamless assistance in tax filing and refund claims, it is advisable to use AI-driven platforms. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both self-filing and expert-assisted plans to cater to different types of taxpayers. The self-filing option is powered by an AI-driven interface that auto-fills data from Form 16, AIS, and PAN, guiding users through every step for an error-free return. It is ideal for salaried individuals with straightforward tax profiles. The expert-assisted plan, on the other hand, connects users with certified tax professionals who prepare, review, and file the return on the taxpayer’s behalf. This option is best suited for individuals with complex income structures, such as business owners, NRIs, or those with capital gains and multiple deductions.
Q2. Which is the best site to file ITR? The official e-filing portal of the Income Tax Department (www.incometax.gov.in) remains the primary statutory platform for filing income tax returns in India. However, many taxpayers prefer using AI-based private platforms like TaxBuddy for their simplicity, accuracy, and time-saving features. TaxBuddy’s platform offers automated data fetching, smart error detection, and expert review options, making it easier for both individuals and businesses to file correctly without missing deductions or triggering notices. It provides a guided, step-by-step process that eliminates technical errors and ensures compliance with the latest tax laws.
Q3. Where to file an income tax return? An income tax return can be filed either directly through the government’s official e-filing portal or through an authorized online platform such as TaxBuddy. The government portal is best suited for those familiar with tax forms and manual data entry. However, TaxBuddy simplifies the process using AI automation that fetches and verifies data from multiple sources like Form 26AS, AIS, and Form 16. Taxpayers can also opt for expert-assisted filing, where professionals review and finalize the return, ensuring maximum accuracy and compliance. This flexibility makes online filing faster, more convenient, and reliable.
Q4. Who is responsible for deducting TDS under Section 194N? The responsibility to deduct TDS under Section 194N lies with banks, cooperative societies, and post offices. These institutions must monitor all cash withdrawals made by an account holder during a financial year. Once the total withdrawals exceed ₹1 crore, the institution automatically deducts TDS at the applicable rate before disbursing the amount. The deduction is reported under the taxpayer’s PAN, and the details appear in Form 26AS or AIS, allowing taxpayers to claim credit or refund when filing their returns. This process ensures transparency and accountability in large cash transactions.
Q5. What is the TDS rate under Section 194N for non-filers? If a taxpayer has not filed income tax returns for the last three assessment years, Section 194N imposes a higher TDS rate of 5% on cash withdrawals exceeding ₹1 crore in a financial year. This higher rate serves as a penalty for non-compliance and encourages individuals and entities to file their returns regularly. In contrast, compliant taxpayers who have filed returns in the last three years are subject to only 2% TDS beyond ₹1 crore. Regular tax filing thus ensures reduced deductions and easier refund claims.
Q6. Is TDS under Section 194N applicable to all accounts? Yes. The TDS under Section 194N is applied based on the total cash withdrawals linked to a single PAN across all accounts held with the same bank or post office. This means that if a person holds multiple accounts under one PAN, the combined total of cash withdrawals is considered for calculating the threshold limit. The rule prevents individuals or entities from avoiding TDS by splitting large withdrawals across multiple accounts. Banks use PAN-based monitoring to ensure proper compliance.
Q7. Can the deducted TDS under Section 194N be claimed as a refund? Yes. If excess TDS has been deducted on cash withdrawals, the taxpayer can claim it as a refund while filing the income tax return. The deduction appears in Form 26AS and the Annual Information Statement (AIS) linked to the taxpayer’s PAN. When the final tax liability is calculated, any excess amount can be adjusted against other dues or refunded by the Income Tax Department. TaxBuddy’s automated refund tracking helps users identify eligible refunds and ensures that such claims are processed accurately and quickly.
Q8. Are cooperative societies eligible for any relaxation under Section 194N? Cooperative societies enjoy a higher threshold limit under Section 194N. Instead of ₹1 crore, they can withdraw up to ₹3 crore in cash per financial year without attracting TDS, provided they have filed their income tax returns and submitted the required documentation. This relaxation recognizes the cash-based operations of many cooperative entities, especially in rural and semi-urban regions. However, if the withdrawal exceeds ₹3 crore, TDS applies at the prescribed rate. Regular filing and accurate documentation help cooperative societies avoid unnecessary deductions.
Q9. Are government departments and diplomatic missions exempt from Section 194N? Yes. Government departments, diplomatic missions, consulates, and international organizations notified by the Central Government are fully exempt from TDS under Section 194N. This exemption ensures that essential administrative and international financial operations are not disrupted. The CBDT’s notification effective December 1, 2024, further extended these exemptions to cover foreign representations, UN agencies, and other international bodies. These exclusions maintain smooth global and governmental transactions while ensuring compliance within private and non-governmental entities.
Q10. What documents are required for high-value transactions? For high-value transactions involving large cash withdrawals or deposits, banks and post offices require detailed KYC documentation. Individuals must provide their PAN, Aadhaar, proof of address, and valid identification documents such as a passport or voter ID. Businesses and HUFs must submit additional documents like the Memorandum and Articles of Association (MOA/AOA), partnership deeds, GST registration, and authorization letters. Ensuring that all documents are up to date helps maintain compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations, avoiding transaction delays or account restrictions.
Q11. How can one avoid higher TDS rates on withdrawals? Avoiding higher TDS deductions under Section 194N primarily involves maintaining tax compliance. Taxpayers should file their ITRs for the past three assessment years and ensure that their PAN is correctly linked with all bank accounts. Opting for digital payments such as UPI, NEFT, or RTGS instead of large cash withdrawals also helps stay below the threshold. Keeping withdrawal records organized and using platforms like TaxBuddy ensures smoother compliance, as it tracks past filings and provides reminders to file returns on time, preventing higher TDS rates.
Q12. Does Section 194N apply to cash deposits? No. Section 194N applies only to cash withdrawals and not to deposits made into a bank account. The law focuses on monitoring cash outflow rather than inflow. However, other reporting obligations, such as PAN quoting for deposits above ₹50,000, still apply under separate provisions of the Income Tax Act. Taxpayers making frequent or large cash deposits should maintain proper records to ensure consistency between their declared income and banking activity. This helps avoid scrutiny or mismatches in the Annual Information Statement (AIS) during tax filing.
