Thinking of withdrawing large amount of cash? Here's when taxes can kick in

If you're planning large cash withdrawals, be mindful of the TDS rules under Section 194N - your bank could deduct tax once your total withdrawals cross key limits

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For many Indians, cash is still king, whether it’s for wedding expenses, business payments, or emergencies. But in recent years, the rules around withdrawing large amounts of cash have changed significantly. Under Section 194N of the Income Tax Act, 1961, the government now requires banks to deduct Tax at Source (TDS) on certain cash withdrawals.

 

This isn’t just another banking formality. It’s part of a broader push to curb unaccounted cash transactions and promote digital payments. For individuals and businesses who still rely heavily on cash, understanding how this rule works is essential to avoid unexpected deductions.

 

How TDS on cash withdrawals works?

 

Under Section 194N, banks track aggregate cash withdrawals across all accounts linked to the same PAN. The TDS deducted depends on two factors:

 

·  The total amount withdrawn in a financial year

 

·  Whether the account holder has filed Income Tax Returns (ITR) for any of the previous three years

 

Here’s how it breaks down for FY 2025-26:

 

·  Up to Rs 20 lakh: No TDS

 

·  Between Rs 20 lakh and Rs 1 crore:  If proof of ITR filing is submitted: No TDS If proof is not submitted: 2 per cent TDS on the amount above Rs 20 lakh

 

·  Above Rs 1 crore:  If proof of ITR filing is submitted: 2per cent TDS on the amount above Rs 1 crore

    If proof is not submitted: 5per cent TDS on the amount above Rs 1 crore

 

Special case: For cooperative societies, the threshold rises to Rs 3 crore, provided necessary documents are submitted.

 

Why proof of ITR filing matters

 

Filing your ITR and providing proof to your bank can protect you from higher TDS rates. Banks generally require the ITR-V (Acknowledgment of Filing of Income Tax Return) for one of the last three financial years. Without this proof, the lower threshold applies and higher rates kick in.

 

CBDT confirms this procedure, and the Income Tax Department provides an online utility for banks to verify ITR filing status

 

Who is Exempt from TDS?

 

Certain accounts and entities are not subject to this TDS rule, including:

 

·  State and central government accounts

 

·  Banks and cooperative societies engaged in banking

 

·  Post offices

 

·  White-label ATM operators authorised by the Reserve Bank of India (RBI)

 

·  Business correspondents of banks or cooperative societies

 

·  Other persons notified by the Central Government

 

How to avoid higher TDS?

 

If you regularly make large cash withdrawals, you can minimise or avoid higher TDS by:

 

·  Filing ITR on time, even if your income is below taxable limits

 

·  Submitting your ITR-V and necessary declarations to your bank

 

·  Monitoring your cumulative cash withdrawals using banking apps or statements

 

·  Using digital modes of payment such as UPI, NEFT, RTGS, or cheques wherever possible