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The 2-Minute Summary
To track cash transactions, banks, co-operative banks, and post offices must deduct TDS when cash withdrawals from accounts cross a threshold in a Tax Year. This is Section 393(3) Sl. No. 5 of the Income Tax Act 2025 (old Section 194N of the 1961 Act).
The Act prescribes a rate of 2% and two different thresholds: Rs. 3 crore for co-operative societies and Rs. 1 crore for all other persons.
Example: A trader withdraws Rs. 1.5 crore in cash from his current account in Tax Year 2026-27. TDS = 2% on Rs. 50 lakh (the amount above Rs. 1 crore) = Rs. 1,00,000.
Example: An agricultural co-operative society withdraws Rs. 2.5 crore in cash. Since the threshold for co-operative societies is Rs. 3 crore, no TDS applies.
Under Income Tax Act 1961: Section 194N of the Income Tax Act 1961. Now Section 393(3) Sl. No. 5 of the Income Tax Act 2025.
At a Glance: What the 2025 Act Provides
| Recipient | Threshold | Rate |
| Co-operative society | Rs. 3 crore | 2% on amount above Rs. 3 crore |
| Any other person | Rs. 1 crore | 2% on amount above Rs. 1 crore |
Who Deducts
Section 393(3) Sl. No. 5 specifies the payer as any person being:
- A banking company.
- A co-operative society engaged in carrying on the business of banking.
- A post office.
The threshold is applied on aggregate cash withdrawals from all accounts maintained by the same person with the same bank in the Tax Year.
The Threshold Distinction
The Act provides two thresholds. The higher Rs. 3 crore threshold for co-operative societies recognises that agricultural and rural co-operatives typically operate with more cash. For all other persons, including individuals, companies, firms, and HUFs, the threshold is Rs. 1 crore.
TDS is not on the full withdrawal amount. It is only on the portion that exceeds the applicable threshold.
Example: A company withdraws Rs. 1.8 crore in cash. TDS = 2% on Rs. 80 lakh (the amount above Rs. 1 crore) = Rs. 1,60,000. The first Rs. 1 crore is not subject to TDS.
Exempt Persons: Section 393(4) Table Sl. No. 18
No TDS is required on cash withdrawals paid to the following under Section 393(4) Table Sl. No. 18:
- The Government.
- Any banking company.
- Any co-operative society engaged in carrying on the business of banking.
- Any business correspondent of a banking company or co-operative bank (as per RBI guidelines).
- Any white label ATM operator of a banking company or co-operative bank (as per RBI authorisation under the Payment and Settlement Systems Act, 2007).
TDS Only on Cash: Not on Other Withdrawals
This provision applies only to physical cash withdrawals. Transfers via NEFT, RTGS, IMPS, or cheque are completely outside this provision regardless of the amount.
TDS is a Credit, Not a Loss
TDS deducted under Sl. No. 5 is specifically excluded from the definition of income received under Section 396 of the Act. This means the TDS deducted on cash withdrawals is not treated as additional income in the hands of the recipient. It is simply an advance tax credit that the recipient claims in their ITR.
Practical Compliance Checklist
- If you regularly need large cash amounts for business: plan cash withdrawals to stay below the Rs. 1 crore threshold where possible, or budget the TDS into your cash flow projections.
- If you are a co-operative society: your threshold is Rs. 3 crore before TDS applies on cash withdrawals.
- TDS deducted from your cash withdrawal is reflected in your Form 26AS. Claim it as a TDS credit in your ITR. If your total tax liability is lower than the TDS deducted, you receive a refund.
- If you are a banking company deducting TDS: ensure you are tracking aggregate cash withdrawals across all accounts of the same customer at your bank and not applying TDS branch-by-branch in isolation.
Section 194N / Sl. 5 is a behavioural provision. Its primary purpose is to discourage large cash transactions and push activity toward digital modes. The 2% rate is low enough not to be prohibitive but significant enough on large amounts to change behaviour. The most effective response is simply to use digital payment modes for large transactions wherever possible.
