TDS on cash withdrawals 2025
Why Banks Deduct TDS on Cash Withdrawals? Complete Guide to Section 194N (Updated 2025)
In India’s push toward a transparent and digital economy,
the Government introduced Section 194N of the Income Tax Act, a provision that
mandates TDS on high-value cash withdrawals. As searches for TDS on cash
withdrawals 2025 increase, it becomes crucial for taxpayers to understand how
this rule works when withdrawing cash from banks, co-operative banks, and post
offices.
This rule aims to curb excessive cash usage, track
unaccounted transactions, and promote digital payments across individuals,
businesses, companies, trusts, HUFs, and other entities.
If you regularly withdraw large sums of cash, understanding the Section 194N
rules — especially the updated norms for TDS on cash withdrawals 2025 — is
essential to avoid unnecessary TDS and ensure proper compliance.
When Does Section 194N Apply?
-Section 194N becomes applicable when cash is withdrawn
from:
- Scheduled
banks
- Co-operative
banks
- Post
offices
The law applies to cash withdrawals made through:
- Self
cheques
- Bearer
cheques
- ATM
withdrawals
- Direct
counter withdrawals
💡 Important: Online
transfers, NEFT/RTGS, IMPS, UPI and any digital payouts are not covered under
Section 194N — therefore, no TDS is deducted on digital transactions.
Cash Withdrawal Limit & TDS Rates Under Section 194N
-The TDS rate depends on whether the individual/entity has
filed Income Tax Returns (ITRs) for the last three assessment years. These
limits continue to be relevant for TDS on cash withdrawals 2025 as well.
A. For ITR Filers (Filed ITR in any of the past 3 years)
- No
TDS on the first ₹1 crore withdrawn in a financial year
- 2%
TDS on the amount exceeding ₹1 crore
Example:
Cash withdrawn = ₹1.30 crore
TDS = 2% on ₹30 lakh
B. For ITR Non-Filers (No ITR filed for all 3 preceding
years)
- 2%
TDS on withdrawals from ₹20 lakh to ₹1 crore
- 5%
TDS on withdrawals above ₹1 crore
Example:
If total withdrawal = ₹1.50 crore:
- 2%
on ₹80 lakh (from ₹20 lakh to ₹1 crore)
- 5%
on ₹50 lakh (above ₹1 crore)
These slabs remain critical for anyone searching about TDS
on cash withdrawals 2025 due to higher rates applicable to non-filers.
Who Is Exempt from TDS Under Section 194N?
-Cash withdrawals by the following are completely exempt:
- Central
& State Governments
- Banks,
co-operative banks, and post offices
- Business
correspondents of banks
- White-label
ATM operators
- Persons
or classes notified by the Government
- Specific
commission agents/traders dealing on behalf of farmers
These exemptions ensure the smooth operation of essential
financial and government services, even under the updated framework of TDS on
cash withdrawals 2025.
How Banks Calculate TDS on Cash Withdrawals
-Banks use an automated system to track cash withdrawals
and apply TDS instantly once the threshold is crossed.
Here’s how they compute it:
- Aggregate
cash withdrawals from all accounts of the person are monitored
- TDS
is auto-deducted immediately after crossing the limit
- PAN
records help verify whether the user is an ITR filer or non-filer
- Banks
may request ITR filing details to apply correct thresholds
- Deducted
TDS appears in Form 26AS and AIS, and can be claimed while filing ITR
These steps remain unchanged for the updated rules
surrounding TDS on cash withdrawals 2025.
Practical Examples for Better Understanding
Example 1: ITR Filer
Mr. A (ITR filer) withdraws the following amounts:
- ₹40
lakh
- ₹35
lakh
- ₹30
lakh
Total = ₹1.05 crore
TDS:
2% on ₹5 lakh = ₹10,000
Example 2: Non-Filer
Ms. B (has not filed ITR for 3 years) withdraws ₹55 lakh.
Calculation:
TDS = 2% on (₹55 lakh – ₹20 lakh) = ₹7,00,000
If she withdraws ₹1.40 crore:
- 2%
on ₹80 lakh
- 5%
on ₹40 lakh
These examples clearly illustrate how TDS on cash
withdrawals 2025 applies differently to filers and non-filers.
Important Compliance Tips for Taxpayers &
Professionals
- Ensure
clients file ITRs regularly—non-filing triggers higher TDS
- Businesses
handling cash should prepare an annual cash withdrawal strategy
- Track
total cash withdrawals across all accounts under the same bank
- Reconcile
TDS under Section 194N using Form 26AS/AIS
- Maintain
proper audit records for high-value withdrawals
- Educate
clients: TDS is not an extra tax—it is refundable/adjustable in ITR
These practices help avoid complications regarding TDS on
cash withdrawals 2025.
Common Mistakes You Must Avoid
- Assuming
each account has a separate ₹1 crore limit
➝ The limit is bank-wise, not account-wise. - Thinking
TDS is deducted only at year-end
➝ It applies the moment your withdrawals cross the limit. - Not
verifying ITR filing status correctly
- Failing
to track withdrawals across multiple branches of the same bank
- Believing
TDS is a financial loss
➝ It is fully adjustable against your tax liability.
Avoiding these mistakes ensures smoother compliance with Section 194N, especially given the increased public interest in TDS on cash withdrawals 2025.
✅ 7 FAQs (SEO-Rich + Simple Explanations)
1. Why do banks deduct TDS on cash withdrawals?
Banks deduct TDS under Section 194N to reduce excessive cash usage, prevent unaccounted money, and promote digital transactions. TDS applies only when a person withdraws cash above specified limits in a financial year.
2. What is the cash withdrawal limit for TDS under Section 194N in 2025?
If you have filed ITR in any of the past 3 years:
➡️ No TDS up to ₹1 crore, then 2% above ₹1 crore.
If you are a non-filer:
➡️ 2% TDS from ₹20 lakh – ₹1 crore
➡️ 5% TDS above ₹1 crore
3. Does TDS apply if I withdraw money through ATM?
Yes. ATM withdrawals are treated the same as counter withdrawals under Section 194N.
But TDS applies only after the threshold is crossed, not on every ATM transaction.
4. Does TDS apply on digital transactions like UPI, NEFT, RTGS or IMPS?
No. Section 194N applies ONLY to cash withdrawals.
Digital payments are completely exempt from TDS under this rule.
5. Who is exempt from TDS under Section 194N?
The following are fully exempt:
✔ Central & State Governments
✔ Banks & Co-operative banks
✔ Post offices
✔ Business correspondents
✔ White-label ATM operators
✔ Certain notified entities and commission agents/traders
6. Can I claim back TDS deducted on cash withdrawals?
Yes. TDS deducted under Section 194N appears in Form 26AS and AIS.
You can claim it while filing your ITR, just like any other TDS credit.
7. How do banks calculate TDS on cash withdrawals?
Banks track the total cash withdrawn across all accounts under the same PAN.
Once the limit crosses, TDS is auto-deducted instantly.
They also check your ITR filing status to apply the correct TDS rate.
Airfinac.com, its author/writer and associates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.