If you take out a very large amount of cash in a year, your bank may cut a slice as tax before handing it over. Under Section 194N of the Income-tax Act, 1961, a bank, co-operative bank or post office deducts 2% TDS once your total cash withdrawals cross ₹1 crore in a financial year. This is not a tax on your income. It is an advance you can adjust against your tax, or get back as a refund, when you file your income-tax return.
The government wants to discourage very large cash dealings, which are hard to trace and easy to misuse. Instead of banning big cash withdrawals, the law makes them visible: the bank reports them and deducts a small percentage as tax. This nudges people toward digital payments and brings high-value cash users onto the tax department's radar.
Section 194N applies to the act of withdrawing cash, not to any income. The money you take out is your own. So the TDS here is only a collection mechanism, not an extra tax on what you earn. That is why you can recover it later.
Section 194N sits in the TDS chapter of the Income-tax Act, 1961. It was introduced with effect from 1 September 2019. The stricter rule for people who do not file returns was added by the Finance Act, 2020 and applies from 1 July 2020.
The section says that a banking company, a co-operative society carrying on banking business, or a post office that pays cash above the threshold to a person must deduct income-tax at the time of payment. The deductor (the bank or post office) is responsible for cutting the TDS and depositing it with the government against your PAN.
The TDS applies only to the portion above the threshold, not to your whole withdrawal. A withdrawal of ₹1.2 crore by a regular filer attracts 2% on ₹20 lakh (the amount above ₹1 crore), not 2% on the full ₹1.2 crore.
If you have filed your income-tax return for any or all of the three preceding assessment years, the normal rule applies:
If you have not filed your ITR for all three preceding assessment years (and the due date to file has already passed), the threshold drops sharply:
This is the law's way of pressing non-filers to come into the tax net.
The ₹1 crore (or ₹20 lakh) limit is reckoned for each bank, co-operative bank or post office separately. Within one bank, the cash you take out of all your accounts there, savings, current or overdraft, is added together. But withdrawals from two different banks are not combined.
So if you withdraw ₹70 lakh in cash from one bank and ₹70 lakh from another in the same year, neither crosses ₹1 crore on its own, and no 194N TDS applies, even though your total is ₹1.4 crore. (One special case: where the person receiving the cash is itself a co-operative society, a higher ₹3 crore threshold applies.)
Section 194N does not apply when the cash is paid to certain bodies. No TDS is deducted on cash paid to:
These exemptions exist because these entities handle large cash for operational reasons, such as loading ATMs or serving rural customers, not for personal use.
Because this TDS is adjustable, you should not treat it as money lost. Here is how to recover it.
A practical tip: keep an eye on your annual cash withdrawals so a deduction does not surprise you. If you genuinely need large cash, plan it, and if you are eligible, file your returns on time so you stay in the lower-threshold-free filer bracket.
No. The cash you withdraw is your own money, not income. Section 194N is only a collection mechanism. The TDS is adjusted against your total tax liability, and any excess is refunded when you file your return.
If you have filed your ITR for the preceding years, there is no TDS up to ₹1 crore of cash withdrawals from a bank in a financial year. Above ₹1 crore, the bank deducts 2% on the excess.
Your threshold falls to ₹20 lakh. The bank deducts 2% on cash withdrawals above ₹20 lakh, and 5% on the portion above ₹1 crore. Filing your pending returns is the way to avoid this stricter rule.
No. The ₹1 crore or ₹20 lakh limit is counted for each bank, co-operative bank or post office separately. All your accounts within the same bank are added together, but different banks are not combined.
Check that it appears in your Form 26AS or AIS, then report it in the TDS schedule when you file your income-tax return. It is set off against your tax, and any excess is refunded.
No. Section 194N is a TDS on a cash transaction, not a personal deduction like 80C. It applies the same way whichever regime you choose, and it does not depend on your regime selection.
If a bank deducts 194N TDS and you cannot see it reflected against your PAN, raise it with the bank and verify your Form 26AS before filing, so your refund is not held up.