Introduction
A major confusion has started after the implementation of the Income-tax Act, 2025 regarding TDS on cash withdrawal.
Earlier, under Section 194N of the Income-tax Act, 1961, TDS on cash withdrawal was generally understood as applicable only on the amount exceeding the prescribed limit.
For example, if a person withdrew ₹1.10 crore and the threshold was ₹1 crore, TDS was generally applied on ₹10 lakh, not on the full ₹1.10 crore.
However, under the Income-tax Act, 2025, the corresponding provision is now covered under Section 393(3), Table Serial No. 5. The wording of the new law has created a serious question:
If cash withdrawal exceeds ₹1 crore, will TDS apply on the entire amount or only on the excess amount above ₹1 crore?
This article explains the issue in simple language.
For TDS compliance, business taxation and income tax advisory, visit TaxClear.in.
What Was the Earlier Rule Under Section 194N?
Under the old Income-tax Act, 1961, Section 194N dealt with TDS on cash withdrawals.
The provision applied when cash withdrawal from one or more accounts exceeded the prescribed limit.
In simple terms:
| Situation | Old Understanding Under Section 194N |
|---|---|
| Cash withdrawal up to threshold | No TDS |
| Cash withdrawal exceeding threshold | TDS on amount exceeding threshold |
| Deductor | Bank, co-operative bank or post office |
| Time of deduction | At the time of cash payment |
For example:
| Particulars | Amount |
|---|---|
| Cash withdrawal | ₹1,10,00,000 |
| Threshold | ₹1,00,00,000 |
| Excess amount | ₹10,00,000 |
| TDS under old understanding | On ₹10,00,000 |
Therefore, many taxpayers and professionals were used to the “excess amount” concept.
What Changed Under Income-tax Act, 2025?
The Income-tax Act, 2025 has reorganised and renumbered several TDS provisions.
The earlier Section 194N is now covered under:
Section 393(3), Table Serial No. 5
This provision covers:
- cash payment from one or more accounts;
- maintained by a person;
- paid by a banking company, co-operative society engaged in banking or post office;
- exceeding the prescribed threshold.
New Threshold Limits Under Section 393(3)
Under Section 393(3), Table Serial No. 5, the threshold limits are:
| Recipient Category | Threshold Limit |
|---|---|
| Co-operative society | ₹3 crore |
| Person other than co-operative society | ₹1 crore |
The rate mentioned is generally 2%.
Main Confusion: Entire Amount vs Excess Amount
The confusion arises because Section 393(3) uses wording that says tax is to be deducted:
on the entire amount of such income or sum, where the amount or aggregate of amounts exceeds the threshold limit.
This language is different from provisions where the law clearly says tax is to be deducted only on the amount exceeding the threshold.
This creates two possible interpretations.
Interpretation 1: TDS on Entire Amount
Under this interpretation, once the cash withdrawal crosses the threshold, TDS applies on the entire cash withdrawal amount.
Example
| Particulars | Amount |
|---|---|
| Total cash withdrawal | ₹1,10,00,000 |
| Threshold | ₹1,00,00,000 |
| TDS rate | 2% |
| TDS base under entire amount view | ₹1,10,00,000 |
| TDS amount | ₹2,20,000 |
This interpretation is based on the literal words “entire amount”.
Some banks have also started communicating that once the aggregate cash withdrawal exceeds the threshold, TDS will apply on the entire cash withdrawn during the year, not only on the excess amount.
Interpretation 2: TDS Only on Excess Amount
Under this interpretation, TDS should apply only on the amount exceeding the threshold.
Example
| Particulars | Amount |
|---|---|
| Total cash withdrawal | ₹1,10,00,000 |
| Threshold | ₹1,00,00,000 |
| Excess amount | ₹10,00,000 |
| TDS rate | 2% |
| TDS base under excess amount view | ₹10,00,000 |
| TDS amount | ₹20,000 |
This interpretation is based on the old Section 194N practice and the logic that a threshold should normally protect the amount up to the threshold.
Comparison Table: Old vs New Position
| Particulars | Section 194N, Old Act | Section 393(3), New Act |
|---|---|---|
| Law | Income-tax Act, 1961 | Income-tax Act, 2025 |
| Topic | TDS on cash withdrawal | TDS on cash withdrawal |
| Threshold for normal persons | ₹1 crore | ₹1 crore |
| Threshold for co-operative society | ₹3 crore after amendment | ₹3 crore |
| Rate | 2% generally | 2% generally |
| Basis of old understanding | Amount exceeding threshold | Wording says entire amount where threshold exceeded |
| Main confusion | Lower | Higher due to new wording |
Practical Example: ₹1.10 Crore Cash Withdrawal
| Particulars | Old Excess Amount View | New Entire Amount View |
|---|---|---|
| Cash withdrawal | ₹1,10,00,000 | ₹1,10,00,000 |
| Threshold | ₹1,00,00,000 | ₹1,00,00,000 |
| TDS base | ₹10,00,000 | ₹1,10,00,000 |
| TDS rate | 2% | 2% |
| TDS amount | ₹20,000 | ₹2,20,000 |
This shows why the issue is important. The TDS difference can be very large.
Why This Language Creates Difficulty
Threshold provisions normally work in two ways:
| Type | Meaning |
|---|---|
| TDS on excess amount | Only amount above threshold is subject to TDS |
| TDS on entire amount after crossing threshold | Once threshold is crossed, entire amount becomes subject to TDS |
The difficulty is that the new Section 393(3) uses “entire amount” language.
For taxpayers, professionals and banks, this creates practical uncertainty because old Section 194N was commonly applied on the excess amount.
Why Banks May Deduct on Entire Amount
Banks are deductors. If a bank deducts less TDS and the department later says TDS should have been deducted on the entire amount, the bank may face default consequences.
Therefore, banks may take a conservative approach and deduct TDS on the entire amount once the threshold is crossed.
This means customers may see higher TDS deduction from cash withdrawals in FY 2026-27.
Is This a Tax or Only TDS?
This is very important.
TDS on cash withdrawal is not a final tax on income. Cash withdrawal itself is not income merely because cash is withdrawn.
TDS is only a tax deduction mechanism.
The person can claim credit of TDS while filing the income tax return, subject to normal rules.
| Point | Meaning |
|---|---|
| Cash withdrawal | Movement of own money |
| TDS deduction | Advance tax collection mechanism |
| Final tax | Depends on actual taxable income |
| TDS credit | Can be claimed in ITR |
| Excess TDS | May result in refund, subject to processing |
Therefore, if higher TDS is deducted, the taxpayer may need to claim credit/refund in ITR.
For ITR filing and refund support, visit TaxClear’s ITR filing services.
Who Deducts TDS on Cash Withdrawal?
TDS is deducted by:
- banking companies;
- co-operative banks/societies engaged in banking;
- post offices.
The deduction is made at the time of cash payment.
Which Withdrawals Are Counted?
Cash withdrawals are counted from one or more accounts maintained with the bank/post office.
Businesses should remember that the threshold is not checked invoice-wise or withdrawal-wise only. It is generally checked on an aggregate basis.
| Example | Treatment |
|---|---|
| One account withdrawal | Counted |
| Multiple accounts in same bank | Aggregated |
| ATM withdrawal | Counted |
| Over-the-counter withdrawal | Counted |
| Cash withdrawal from post office | Counted |
| Withdrawal by exempt persons | May not attract TDS |
Exempt Persons
TDS on cash withdrawal does not apply to certain persons, such as:
- Government;
- banking company;
- co-operative bank;
- post office;
- business correspondent of a banking company or co-operative bank;
- white-label ATM operator;
- other notified persons.
Businesses should check whether they fall within any exemption before assuming TDS applies.
What If PAN Is Inoperative or Not Available?
If PAN is not available or is inoperative, higher TDS consequences may apply.
Some banks have stated that where PAN is inoperative, TDS may apply at 20%.
Therefore, taxpayers making high cash withdrawals should ensure:
- PAN is valid;
- PAN is operative;
- PAN is linked where required;
- bank records are updated;
- KYC is complete.
Impact on Businesses
The new interpretation can affect businesses that deal heavily in cash.
Examples include:
- wholesalers;
- traders;
- mandi businesses;
- cash-intensive retail businesses;
- transport businesses;
- commission agents;
- rural market businesses;
- small contractors;
- businesses with cash labour payments;
- co-operative societies.
If TDS is deducted on the entire amount after crossing threshold, working capital may be affected.
Business Example
Suppose a trader withdraws ₹1.20 crore cash during the year.
| Particulars | Excess Amount View | Entire Amount View |
|---|---|---|
| Total cash withdrawal | ₹1,20,00,000 | ₹1,20,00,000 |
| Threshold | ₹1,00,00,000 | ₹1,00,00,000 |
| TDS base | ₹20,00,000 | ₹1,20,00,000 |
| TDS at 2% | ₹40,000 | ₹2,40,000 |
The cash flow difference is ₹2,00,000.
Why Clarification Is Needed
A CBDT clarification would help because:
- banks need certainty;
- taxpayers need cash flow planning;
- professionals need correct compliance position;
- TDS return filing must be accurate;
- refund litigation can be reduced;
- business cash planning depends on the interpretation.
Until clarification is issued, the safer practical assumption is that banks may deduct TDS on the entire amount once the threshold is crossed.
What Should Taxpayers Do Now?
Taxpayers should not wait until cash withdrawal crosses the limit.
They should plan in advance.
Practical Action Plan
| Step | Action |
|---|---|
| 1 | Track cash withdrawals from April onwards |
| 2 | Check withdrawal across all accounts in same bank |
| 3 | Keep PAN/KYC updated |
| 4 | Avoid unnecessary cash withdrawals |
| 5 | Use banking channels where possible |
| 6 | Check bank’s TDS policy |
| 7 | Reconcile TDS in Form 26AS/Form 168/AIS |
| 8 | Claim TDS credit in ITR |
| 9 | Maintain cash book properly |
| 10 | Consult tax advisor before crossing threshold |
For tax planning and cash transaction compliance, visit TaxClear’s tax planning services.
What Should Accountants Check?
Accountants should check:
- cash withdrawal ledger;
- bank-wise cash withdrawals;
- PAN status;
- TDS deducted by bank;
- TDS appearing in AIS/Form 168;
- TDS certificate;
- cash book;
- reason for large cash withdrawal;
- cash utilisation;
- business necessity;
- reporting in books and ITR.
Will Higher TDS Mean Higher Final Tax?
No, not necessarily.
If TDS is deducted on cash withdrawal, it is available as credit against the final tax liability.
If final tax liability is lower than TDS credit, refund may be claimed.
| Situation | Result |
|---|---|
| TDS deducted is less than final tax | Additional tax payable |
| TDS deducted equals final tax | No extra tax |
| TDS deducted is more than final tax | Refund may arise |
| Cash withdrawal is not income | Still TDS may be deducted if law applies |
Common Mistakes to Avoid
| Mistake | Risk |
|---|---|
| Assuming old Section 194N logic automatically continues | Wrong cash-flow planning |
| Ignoring new Section 393(3) wording | Surprise TDS deduction |
| Not checking bank policy | Mismatch in expectation |
| Keeping PAN inoperative | Higher TDS |
| Not reconciling TDS credit | Refund loss or mismatch |
| Treating TDS as final tax | Incorrect understanding |
| Not maintaining cash book | Scrutiny risk |
| Large cash withdrawals without business reason | Possible notice risk |
| Not advising clients in advance | Professional risk |
Suggested Note for Clients
Professionals may share a simple note with clients:
“Under the Income-tax Act, 2025, TDS on cash withdrawal is now covered under Section 393(3), Table Serial No. 5. Due to the wording ‘entire amount’, banks may deduct TDS on the full cash withdrawal once the applicable threshold is crossed. Please avoid unnecessary cash withdrawals, keep PAN/KYC updated and inform us before large withdrawals.”
Practical Difference Between TDS and Cash Transaction Reporting
TDS on cash withdrawal is different from cash transaction reporting.
| Point | TDS on Cash Withdrawal | Cash Transaction Reporting |
|---|---|---|
| Purpose | Deduct tax at source | Report high-value transactions |
| Applies to | Cash withdrawals beyond threshold | Certain deposits/transactions |
| Deductor/reporting party | Bank/post office | Bank/financial institution |
| Taxpayer impact | TDS credit/refund | Possible AIS/SFT visibility |
| Compliance requirement | Track TDS | Explain source/use of cash |
Both should be monitored carefully.
TaxClear View
The wording of Section 393(3) under the Income-tax Act, 2025 has created genuine confusion.
From a conservative compliance perspective, taxpayers should be ready for banks to deduct TDS on the entire amount once the threshold is crossed. This is already being communicated by some banks.
However, from a policy perspective, taxpayers and professionals may expect CBDT to clarify whether TDS should apply on:
- the entire cash withdrawal amount; or
- only the amount exceeding the threshold.
Until such clarification comes, businesses should plan cash withdrawals carefully and maintain proper documentation.
Key Takeaways
- TDS on cash withdrawal was earlier covered under Section 194N.
- Under Income-tax Act, 2025, it is covered under Section 393(3), Table Serial No. 5.
- Threshold is ₹1 crore for persons other than co-operative societies.
- Threshold is ₹3 crore for co-operative societies.
- Rate is generally 2%.
- The new wording refers to deduction on the “entire amount” where the threshold is exceeded.
- This creates a major difference from the old “excess amount” understanding.
- Banks may deduct TDS on the full amount after threshold is crossed.
- TDS is not final tax; it can be claimed as credit in ITR.
- PAN and KYC should be updated to avoid higher TDS issues.
- Businesses should track cash withdrawals carefully.
Conclusion
The new Income-tax Act, 2025 has created a practical issue in TDS on cash withdrawal. Under the old Section 194N approach, taxpayers generally understood that TDS applied only on the amount exceeding the threshold.
But Section 393(3) of the new Act uses “entire amount” language. Because of this, banks may deduct TDS on the full cash withdrawal amount once the ₹1 crore or ₹3 crore threshold is crossed.
Until CBDT issues a specific clarification, taxpayers should take a conservative view, track withdrawals and plan cash usage carefully.
For TDS compliance, cash transaction advisory, business taxation and ITR filing support, visit TaxClear.in.
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