Section 194N levies TDS on large cash withdrawals ā learn the FY 2026-27 thresholds, rates for non-filers, exemptions, and how to claim credit in your ITR.
Section 194N under IT Act: TDS on Cash Withdrawals ā Complete Guide for FY 2026-27
Section 194N of the Income Tax Act, 1961 requires banks, co-operative banks, and post offices to deduct TDS on cash withdrawals that cross specified annual thresholds ā ā¹1 crore for taxpayers who have filed ITRs for the three preceding years, and as low as ā¹20 lakh for those who have not. For FY 2026-27, two rates apply ā 2% and 5% ā determined entirely by your ITR filing history. The TDS is refundable against your tax liability, but only if you actually file your return.
What Section 194N Actually Says ā and What It Does Not
Section 194N was inserted by the Finance (No. 2) Act, 2019, effective 1 September 2019. The Finance Act, 2020 sharpened it by introducing a dual threshold and a punitive rate for non-filers. The section remains structurally unchanged for FY 2026-27.
The obligation to deduct sits with the payer ā the bank, co-operative bank, or post office ā not with the person making the withdrawal. The payer deducts TDS at the moment of payment, reports it in Form 26Q (the quarterly non-salary TDS return), and issues Form 16A to you. The entry then flows automatically into your Annual Information Statement (AIS) and Form 26AS on the Income Tax portal (incometax.gov.in).
Three things the section does not do, which confuse people: it does not prohibit large cash withdrawals; it does not treat the withdrawn amount as income in your hands; and it is not a penalty. It is a tax-collection mechanism ā an advance against your eventual income-tax liability.
The operative phrase in the section is "aggregate of amounts" ā meaning the threshold applies across all transactions in the financial year with the same banking entity under your PAN, not per branch, per account, or per transaction.
The Rate Structure for FY 2026-27: Two Thresholds, Three Effective Slabs
The section creates two distinct rate structures based on one binary question: have you filed ITRs for all three of the relevant preceding financial years?
If You Are a Regular Filer (All Three Preceding Years Filed)
| Cumulative Cash Withdrawn (FY 2026-27) | TDS Rate |
|---|---|
| Up to ā¹1,00,00,000 | Nil |
| Excess above ā¹1 crore | 2% on the excess |
The first ā¹1 crore you withdraw from a single banking entity in the year is fully exempt. TDS at 2% applies only on each rupee beyond that mark.
If You Are a Non-Filer (Any One of Three Preceding Years Missed)
| Cumulative Cash Withdrawn (FY 2026-27) | TDS Rate |
|---|---|
| Up to ā¹20,00,000 | Nil |
| ā¹20 lakh to ā¹1 crore | 2% on the amount in this band |
| Excess above ā¹1 crore | 5% on the excess above ā¹1 crore |
Your exemption threshold drops from ā¹1 crore to ā¹20 lakh ā a 95% reduction ā and a 5% rate kicks in at the top. Missing even one year of ITR filing has a direct, measurable cash cost.
How "Three Preceding Years" Is Counted in Practice
This is more nuanced than most guides explain. The statute refers to the three financial years preceding the year of withdrawal for which the section 139(1) deadline has already passed. The standard filing deadline is 31 July for non-audit cases and 31 October for audit cases.
Why this matters: If you withdraw cash in May 2026 (early FY 2026-27), the due date for FY 2025-26 (31 July 2026) has not yet expired. The bank therefore checks FY 2024-25, FY 2023-24, and FY 2022-23. If you withdraw in October 2026, the FY 2025-26 deadline has passed, so the bank checks FY 2025-26, FY 2024-25, and FY 2023-24. Banks verify your filer status in real time via the Income Tax Department's PAN-linked verification API integrated with their Core Banking System (CBS). There is no manual override and no grace window.
The Missing-PAN Scenario
If you do not furnish a valid PAN, TDS applies at 20% under section 206AA ā no threshold exemption whatsoever. Always ensure your PAN is correctly seeded with every bank account and post office account you hold.
Who Must Deduct, and Who Is Exempt
Deductors Covered
Every scheduled commercial bank, co-operative bank (including Primary Agricultural Credit Societies functioning as banks), and post office in India is covered. This includes small finance banks, payments banks, and regional rural banks.
Exempt Recipients
The following categories of recipients are carved out from section 194N ā TDS is not deducted when paying cash to:
- Central Government or State Government ā their departmental accounts
- Banking companies themselves ā a bank withdrawing from another bank is exempt
- Co-operative societies engaged in the business of banking
- Business correspondents of banking companies (RBI-authorised agents)
- White-label ATM operators authorised by the RBI
- Commission agents or traders operating under APMC mandis, notified for purchasing agricultural produce
- Entities notified by the Central Government through CBDT notifications in consultation with RBI
If your entity falls under an exempt category, do not rely on the CBS to flag this automatically. Provide the relevant documentary evidence ā CBDT notification number, RBI authorisation, APMC certificate ā to your bank in writing and retain an acknowledgement.
How the ā¹1 Crore Threshold Is Actually Calculated
The threshold aggregates all withdrawals under your PAN with the same banking entity during the financial year. Consider what this means in practice:
- You hold a current account and two savings accounts at the same bank ā all three are pooled.
- You withdraw ā¹80 lakh from the current account and ā¹25 lakh from a savings account at the same bank: total ā¹1.05 crore. TDS applies on ā¹5 lakh at 2% = ā¹10,000.
- You withdraw ā¹80 lakh from Bank A and ā¹80 lakh from Bank B: each bank independently applies its own threshold ā neither triggers TDS (assuming regular-filer status).
The aggregation is entity-wise, not cross-industry. Different banking entities each maintain independent running totals for your PAN. However, all these withdrawals flow into your AIS, giving the Income Tax Department a full cross-bank picture ā even when no single bank triggers TDS.
Worked Examples with Real Rs. Figures
Example 1 ā Regular Filer, Large Property Purchase
Profile: Salaried professional, ITRs filed for FY 2023-24, FY 2024-25, and FY 2025-26. Withdraws ā¹1,20,00,000 (ā¹1.2 crore) in FY 2026-27 from SBI to fund a land purchase.
- Exempt: First ā¹1,00,00,000
- Taxable excess: ā¹20,00,000
- TDS = 2% Ć ā¹20,00,000 = ā¹40,000
The ā¹40,000 appears in Form 26AS and AIS. When the ITR is filed for AY 2027-28, it is credited against total tax liability. If the individual owes ā¹3,20,000 in tax, the net payable is ā¹2,80,000. If total tax is only ā¹22,000, a refund of ā¹18,000 is due.
Example 2 ā Non-Filer, Moderate Withdrawal
Profile: Proprietor of a wholesale textile business. Did not file ITRs for FY 2023-24 or FY 2024-25. Withdraws ā¹45 lakh from HDFC Bank in FY 2026-27 for trade payments.
- Exempt: First ā¹20,00,000
- Taxable excess (ā¹20L to ā¹1Cr band): ā¹25,00,000
- TDS = 2% Ć ā¹25,00,000 = ā¹50,000
ā¹50,000 of working capital is locked up immediately because of two missed ITR filings. That is the direct, quantifiable cost of non-compliance ā paid before any income tax demand is even raised.
Example 3 ā Non-Filer, Very High Withdrawal
Profile: Property broker, no ITRs filed for three preceding years, withdraws ā¹1,10,00,000 (ā¹1.1 crore) from Punjab National Bank in FY 2026-27.
- Exempt: First ā¹20,00,000
- Band 1 (ā¹20L to ā¹1Cr): Taxable amount = ā¹80,00,000 ā 2% = ā¹1,60,000
- Band 2 (above ā¹1Cr): Taxable amount = ā¹10,00,000 ā 5% = ā¹50,000
- Total TDS = ā¹2,10,000
This ā¹2,10,000 is recoverable via ITR ā but the withdrawal itself, combined with no ITR history, will likely generate an inquiry under section 133(6) or a notice under section 148A. The TDS is the smallest of the compliance exposures here.
Example 4 ā Staggered Withdrawals Across a Partnership Firm's Year
Profile: Partnership firm (two partners), regular filers, current account with Canara Bank. Withdrawals during FY 2026-27:
| Month | Withdrawal | Running Total |
|---|---|---|
| April 2026 | ā¹30 lakh | ā¹30 lakh |
| July 2026 | ā¹40 lakh | ā¹70 lakh |
| October 2026 | ā¹20 lakh | ā¹90 lakh |
| January 2027 | ā¹15 lakh | ā¹1.05 crore |
No TDS is deducted until January 2027, when the running total crosses ā¹1 crore. At that point, Canara Bank deducts 2% on the incremental ā¹5 lakh = ā¹10,000 at the time of the January transaction. The bank's CBS tracks the running total automatically throughout the year.
TDS Compliance: Forms, Deadlines, and the Reporting Chain
What the Bank Is Required to Do
- Query ITR filing status via the ITD's PAN verification API at the time of each significant withdrawal.
- Deduct TDS at the point of payment ā when the cumulative threshold is breached, not at year-end.
- Deposit the TDS with the government ā by the 7th of the following month for deductions made April through February; by 30 April 2027 for deductions in March 2027.
- File Form 26Q quarterly ā due dates for FY 2026-27: 31 July 2026 (Q1), 31 October 2026 (Q2), 31 January 2027 (Q3), 31 May 2027 (Q4).
- Issue Form 16A ā within 15 days of the Form 26Q due date. For Q4 FY 2026-27, expect Form 16A by approximately 14 June 2027.
What You Should Do After Any 194N Deduction
- Collect Form 16A from the bank after each quarter-end. Do not wait until year-end.
- Log in to AIS on incometax.gov.in ā Services ā Annual Information Statement. Section 194N entries appear under "TDS/TCS Information." Review at least once per quarter.
- Submit AIS feedback if any entry is incorrect ā wrong amount, wrong deductor, or wrong section code. The AIS system accepts taxpayer feedback on each entry, and unresolved mismatches create problems at ITR processing.
How to Claim Section 194N Credit in Your ITR for AY 2027-28
The Nature of This Particular Credit
Section 194N TDS is a credit against tax liability, not a deduction from income. The cash withdrawal itself is not income. The credit is fully refundable if your total tax liability is lower than the TDS deducted ā but unlike losses, it cannot be carried forward to AY 2028-29. You must claim it in AY 2027-28 or it lapses.
Step-by-Step Process
- Verify AIS before opening the ITR. Confirm every section 194N entry ā deductor name, TAN, amount, and financial year ā is correct. Raise feedback on any discrepancy and follow up with the bank to file a TDS correction statement if needed.
- Open your pre-filled ITR on the portal. For most individuals and firms, TDS data auto-populates from Form 26AS. For the New Common ITR Form (under phased rollout), the pre-fill also draws from AIS.
- Navigate to the TDS Schedule. Identify the row showing Section 194N with the bank's TAN. Confirm the deducted amount matches your records and Form 16A.
- Report your income normally. Do not reduce your income by the TDS amount. Income from business, salary, capital gains, and other heads is reported gross. The TDS credit is applied at the computation stage.
- Verify the net tax payable / refund amount. After all credits ā section 194N TDS, advance tax, other TDS ā confirm that the net figure is accurate before submission.
- File by 31 July 2027 for non-audit cases (AY 2027-28 due date). A belated return filed after 31 December 2027 attracts a fee under section 234F ā ā¹5,000 for total income above ā¹5 lakh, ā¹1,000 if total income is ā¹5 lakh or below.
Common Mistakes and Pitfalls to Avoid
Treating the threshold as per-transaction. The ā¹1 crore limit is annual and cumulative. A business withdrawing ā¹8-9 lakh bi-weekly will cross ā¹1 crore within 12-13 transactions and face TDS on every subsequent withdrawal for the rest of the year.
Believing a second account at the same bank resets the counter. It does not. All accounts under your PAN at the same bank are aggregated at the CBS level. Opening a new account does not create a fresh threshold.
Not collecting Form 16A proactively. If the bank records your PAN incorrectly in Form 26Q, the TDS will not appear in your Form 26AS or AIS. You will have less credit than you actually paid, and chasing a correction close to the ITR due date is stressful and time-consuming.
Assuming the non-filer flag is checked only once a year. Banks query ITR status each time a significant withdrawal is processed. If you filed a missing return in June 2026 and withdraw cash in July 2026, the bank may already see you as a filer for that query and apply the ā¹1 crore threshold. Conversely, if you miss the July 2026 deadline for FY 2025-26, your status changes from that date. The CBS check is dynamic.
Booking the TDS as a business expense. Section 194N TDS is prepaid tax ā an asset ā not an expense. Record it as "Advance Tax / TDS Recoverable" in your books and credit it against tax payable in the P&L tax computation.
Overlooking post office and co-operative bank accounts. Many entrepreneurs and farmers maintain substantial balances in PACS accounts or post office savings accounts. These institutions are equally obligated under section 194N, and their CBS reporting flows into AIS. Ignoring these accounts when planning cash withdrawals can lead to unexpected TDS hits.
Not reconciling AIS until March. AIS entries for section 194N in Q1 (April-June) appear in the system by late July. Reviewing them then ā rather than in March 2027 ā gives you time to file any missing preceding-year returns, update your filer status, and reduce the TDS rate applicable to future withdrawals.
Co-operative Banks, Post Offices, and the Complete Digital Trail
Co-operative banks ā including District Central Co-operative Banks (DCCBs) and Primary Co-operative Agricultural and Rural Development Banks ā are expressly covered under section 194N. Their CBS systems have been progressively linked to the ITD's reporting infrastructure, making PAN verification and real-time TDS deduction more consistent than in the early years of the provision.
Post offices ā under the Department of Posts ā are equally obligated. Withdrawals from NSS accounts, Post Office Savings Bank accounts, recurring deposits, and time deposits all count toward the threshold at the PAN level. If you maintain a post office account with significant activity, plan accordingly.
The practical takeaway is that the AIS integration is now comprehensive. Whether the deduction is made by a nationalised bank in a metro or a PACS in a rural district, the TDS entry reaches the same AIS system and the same scrutiny infrastructure. There is no institutional gap in the data trail, and there is no geography where section 194N quietly does not apply.
Key Takeaways
- Two thresholds, two rates: Regular filers face 2% TDS only above ā¹1 crore; non-filers face 2% above ā¹20 lakh and 5% above ā¹1 crore ā making timely ITR filing a direct cost-saving decision, not just a compliance checkbox.
- Aggregation is per PAN, per banking entity, per year: Multiple accounts at the same bank are pooled; accounts at different banks are counted independently.
- TDS is deducted at the moment a withdrawal breaches the threshold, not at year-end ā the CBS tracks your running total automatically.
- The credit is fully refundable but cannot be carried forward: Claim it in AY 2027-28; it lapses if not used in the same assessment year.
- A single missed preceding-year ITR drops your threshold from ā¹1 crore to ā¹20 lakh ā a 95% reduction with an immediate financial consequence on the next cash withdrawal.
- Reconcile AIS quarterly, not just at filing time: Discrepancies caught in July 2026 can be resolved before they compound into demand notices in AY 2027-28.
- Form 16A from the bank, matched against AIS, is your two-source verification: Any mismatch must be resolved before you file ā not after a processing notice arrives.
