Section 194N Explained 2026: TDS on Cash Withdrawal Above ₹1 Crore (and Why Non-Filers Pay at ₹20 Lakh)

By Nitish Bharadwaj · Published Sep 4, 2026 · 6 min

Section 194N requires banks, cooperative banks, and post offices to deduct TDS when a person's aggregate cash withdrawals from that institution cross ₹1 crore in a financial year — 2% on the amount above the threshold, deducted even though the money isn't taxable income. For anyone who hasn't filed an income tax return for the relevant preceding years, the threshold drops sharply to ₹20 lakh, with a two-tier rate: 2% between ₹20 lakh and ₹1 crore, and 5% beyond ₹1 crore. This guide covers how the aggregation works across withdrawals and branches, which categories are exempt (government bodies, business correspondents, white-label ATM operators, among others), and how the deducted TDS is claimed back as a credit when filing your ITR since it isn't a final tax on income.

It's your own money sitting in your own bank account — but withdraw more than ₹1 crore in cash from one bank in a financial year, and the bank is legally required to hold back 2% before handing over the rest. That's Section 194N, introduced to nudge large cash transactions into the tax net. It gets far more aggressive if you haven't been filing your ITR: the threshold collapses to ₹20 lakh, and the rate above ₹1 crore jumps to 5%. Here's exactly how the aggregation, thresholds, and exemptions work, and how to get the deducted amount back.

The Basic Rule: 2% TDS Above ₹1 Crore

Section 194N requires every bank (public, private, or foreign), cooperative bank, and post office to deduct TDS at 2% on cash withdrawals once your total cash withdrawals from that single institution cross ₹1 crore in a financial year — the 2% applies only to the amount above ₹1 crore, not the entire withdrawal. This isn't a tax on income; it's a TDS mechanism applied to your own capital, specifically because large cash movements are harder for the tax department to trace than digital transactions. The deduction happens automatically at the bank counter or ATM/cash-handling point once the threshold is crossed — there's no separate declaration you need to file to trigger it.

The Steeper Rule for Non-Filers: ₹20 Lakh, Not ₹1 Crore

The Finance Act, 2020 added a second, tougher track for anyone who hasn't filed an income tax return for all three assessment years immediately preceding the year of withdrawal (or, if not all three are due yet, for the years that are). For this category of "non-filers," the threshold drops to ₹20 lakh, and the rate structure has two slabs: 2% TDS on cash withdrawals between ₹20 lakh and ₹1 crore, and 5% TDS on the portion above ₹1 crore. A regular ITR filer crossing ₹1 crore pays a flat 2% on the excess; a non-filer crossing the same ₹1 crore pays 2% on the ₹20 lakh–₹1 crore band plus 5% on everything above ₹1 crore — a materially higher total deduction for the identical withdrawal amount.

How the Aggregation Actually Works

The ₹1 crore (or ₹20 lakh) threshold is calculated per payer — meaning per bank — and aggregates every cash withdrawal you make from that bank across all your accounts and all its branches during the financial year, running April to March. Withdrawing ₹60 lakh from Bank A and ₹60 lakh from Bank B in the same year doesn't trigger 194N at either bank individually, since neither crosses ₹1 crore on its own, even though your combined cash withdrawal across both banks is ₹1.2 crore. This is structurally similar to how DICGC deposit insurance aggregates by bank rather than by account — the institution, not the account, is the unit that matters.

Who Is Exempt From Section 194N

• The government, and any banking company, cooperative society engaged in banking, or post office when they are themselves the recipient of the withdrawal (not the person withdrawing)
• Business correspondents of a banking company, operating under RBI's business correspondent model
• White-label ATM operators of a banking company
• Authorised dealers and their franchise agents, and full-fledged money changers licensed under FEMA, along with their franchise agents, when withdrawing cash for the specific purpose of purchasing foreign currency from foreign tourists or non-residents, or for disbursing money under approved money transfer schemes
• Any other person the Central Government notifies in consultation with RBI, subject to conditions specified in that notification

The TDS Isn't Lost — It's a Credit, Not a Tax on Income

Because the money withdrawn is your own capital, not income, Section 194N TDS is not a final tax the way TDS on interest or salary can effectively be for a low earner. The amount deducted shows up in your Form 26AS and AIS just like any other TDS entry, and you claim it as a credit against your total tax liability when filing your ITR — our Form 26AS vs AIS reconciliation guide covers how to match TDS entries like this one against your return. If your total tax liability for the year is less than the TDS already deducted under 194N, the excess is refunded, exactly as with any other TDS deducted in excess of your actual liability. The catch for non-filers is more practical than financial: getting this TDS credited and refunded still requires filing a return for that year, which somewhat defeats the point of having avoided filing in the first place.

Why This Rule Exists

Section 194N was introduced by the Finance (No. 2) Act, 2019, specifically to discourage high-value cash transactions and widen the tax base by making large cash movements visible to the tax department through the TDS trail, in the same broad push that also introduced reporting on large cash deposits under Section 269ST. It sits alongside 194N's mirror rule on the deposit side — together, the two provisions mean both large cash withdrawals and large cash deposits now leave a TDS or reporting trail rather than moving invisibly through the banking system.

For most salaried and retail taxpayers who withdraw cash occasionally for personal expenses, ₹1 crore in a single financial year from one bank is a very high bar and 194N rarely applies. It matters far more for businesses running significant cash operations — traders, contractors, and cash-heavy retail — where crossing ₹1 crore across routine withdrawals is realistic, and doubly so if that business hasn't been filing returns, where the ₹20 lakh threshold turns 194N into a much more immediate cost of staying outside the ITR system.