When does 194N tax a cash withdrawal?

What does section 194N cover?

Section 194N is TDS on the act of taking cash out. A bank, cooperative bank, or post office deducts tax when it pays cash to a person from one or more accounts that person holds with it, once the year's cash withdrawals pass a threshold. The deduction runs on the amount above the threshold, not on the whole withdrawal.

It was section 194N of the Income-tax Act, 1961. From 1 April 2026 the same rule sits within the consolidated deduction section, section 393 of the Income-tax Act, 2025. The thresholds and rates are the same; the section number changed.

When does 194N TDS start?

There are two starting lines under section 194N, and which one applies depends on whether the person has filed returns. For a person who has filed income-tax returns, deduction starts once cash withdrawals in the year cross ₹1 crore. For a person who has not filed returns for each of the three assessment years immediately preceding, the line drops to ₹20 lakh.

The threshold is measured across all the accounts the person holds with that payer, aggregated for the year. It is a per-payer test, not a per-account one, so splitting withdrawals across accounts at the same bank does not reset the count.

Is the 194N threshold per account or per bank?

Per bank, across every account the person holds with that payer. Two savings accounts at the same bank share one ₹1 crore or ₹20 lakh count. Accounts at a second bank start their own count with that second payer.

What are the 194N TDS rates?

The rate applies to the amount that exceeds the threshold, not to the whole sum. A regular filer withdrawing ₹1.2 crore in cash faces 2 per cent on ₹20 lakh, not on ₹1.2 crore.

Does 194N tax the whole withdrawal or only the excess?

Only the excess. Section 194N does not deduct 2 per cent on the first rupee of a ₹1.2 crore cash year. A filer is taxed on the amount above ₹1 crore; a three-year non-filer is taxed from ₹20 lakh, with the 5 per cent band only above ₹1 crore.

Who deducts TDS on cash withdrawals?

The payer that deducts section 194N is a banking company, a cooperative bank engaged in banking, or a post office. It deducts at the point of paying cash to the account holder. The tax deducted shows in the recipient's Form 26AS and can be claimed when the recipient files a return, which is part of why the non-filer line exists at all.

How did 194N move into section 393?

The Income-tax Act, 2025 pulls the scattered deduction provisions into one section with a table. The cash-withdrawal TDS that professionals knew as section 194N now reads within section 393. For anything before 1 April 2026, the reference is section 194N of the 1961 Act; from that date, point at section 393. The substance is the same.

How do I confirm a 194N charge?

1. Check whether the withdrawer has filed returns for the three preceding years, which decides the ₹20 lakh versus ₹1 crore line.
2. Aggregate cash withdrawals across all accounts the person holds with the payer for the year.
3. Apply the rate only to the amount above the threshold.
4. Read the 194N FAQ on the e-Filing portal and section 393 for the wording from April 2026.

Why is 194N TDS computed wrongly?

• Applying the ₹1 crore line to a non-filer who actually faces the ₹20 lakh line.
• Deducting on the whole withdrawal instead of only the amount above the threshold.
• Treating each account separately rather than aggregating across accounts at the same payer.
• Forgetting that the deducted tax is claimable on filing a return, which is the whole point of the non-filer penalty rate.
• Citing section 194N for a withdrawal on or after 1 April 2026 instead of section 393.

Where do cash-withdrawal TDS rules change?

The 194N non-filer test and the 5 per cent band are the pieces Finance Acts actually retouch, not the idea of taxing large cash withdrawals. Complied AI keeps CBDT / Income Tax updates in one feed so a bank or an account holder can open the notification behind a new line. From 1 April 2026, read that update next to section 393.