Answer Book question
Section 194N. If your cash withdrawals from all accounts with one bank cross ₹1 crore in a financial year, the bank must deduct 2% on the excess. If you have not filed income-tax returns for the previous three years, the thresholds fall to ₹20 lakh (2% on the excess) and ₹1 crore (5% on the excess). It is TDS, not a fine; you claim it back in your return. But it is the reason many small traders and cooperative-society members who withdraw cash to pay staff suddenly see deductions, and it is a strong reason to file returns even when income is below the taxable limit.
Section 194N. If your cash withdrawals from all accounts with one bank cross ₹1 crore in a financial year, the bank must deduct 2% on the excess. If you have not filed income-tax returns for the previous three years, the thresholds fall to ₹20 lakh (2% on the excess) and ₹1 crore (5% on the excess). It is TDS, not a fine; you claim it back in your return. But it is the reason many small traders and cooperative-society members who withdraw cash to pay staff suddenly see deductions, and it is a strong reason to file returns even when income is below the taxable limit.
A hardware shop owner in Adoor who pays his five staff in cash withdraws ₹30 lakh across the year and has never filed a return because his income is modest. From the day his withdrawals cross ₹20 lakh the bank deducts 2%. The deduction is recoverable only by filing a return, which he has been avoiding.
Section 194N has applied since 2019, with the lower thresholds for non-filers since July 2020. It applies per bank (all branches and accounts aggregated), including cooperative banks and post offices. Exemptions exist for government bodies, banks, post offices, business correspondents, ATM operators, and certain farmer producer organisations and commission agents under notification. The tax appears in your Form 26AS and AIS and is set off against your tax liability or refunded. The Budget 2025 changes to thresholds for other TDS sections did not alter 194N's ₹1 crore and ₹20 lakh lines; verify the current figures before acting.
Whether you filed returns for the last three years; the non-filer thresholds are the trap Total cash withdrawals per bank this year, including cash cheques and ATM Whether you are an exempt category (for example, a cooperative society's authorised cash handler under notification) Form 26AS / AIS: the deduction should be visible and claimable Whether the withdrawals can be replaced by bank transfers to staff and suppliers
Not filing because income is below the limit, then losing the TDS because it was never claimed. Also: spreading withdrawals across two banks to stay under the limit, which is legal but defeats the purpose of keeping the business clean.
Large cash withdrawals for daily-wage labour, rubber tapping and construction are routine in Kerala. Switching wages to UPI or bank transfer removes 194N entirely and builds the paper trail a bank wants for a working-capital loan later.
Non-filer, withdrawals ₹30 lakh in the year from one bank: 2% on the ₹10 lakh above ₹20 lakh = ₹20,000 deducted. Filer: nothing deducted until ₹1 crore. Filing a nil or low-income return for three years moves you from the first line to the second.
If the deduction is correct, the remedy is a return, not a complaint. If the bank has deducted despite your having filed, give the branch your acknowledgements; banks verify filing status through the department's portal and sometimes lag.
File returns for the last years if you have not, even with nil tax Claim 194N credit in this year's return Move wages and supplier payments to bank transfer
Can I receive ₹2 lakh or more in cash? How much working capital do I really need? (Vol 1)
Tax & compliance (CA referral)
Income-tax Act, Section 194N and CBDT notifications on exempt categories · Your Form 26AS and AIS Last checked: 22 August 2026. Rates, limits and whether you may qualify change. Confirm with the official source before you act. Ask Kerala Rising: Use only general, non-identifying facts. Do not send bank, health, legal, property, identity, account, transaction, or loan documents, screenshots, numbers, OTPs, or passwords over WhatsApp. Kerala Rising can explain public sources and questions to take to the responsible bank, office, or qualified professional. WhatsApp +1 443 595 9000 · keralarising.com
This page is general orientation, not personal insurance, investment, medical, legal, lending, tax, employment, or professional advice. Rules, rates, deadlines, and decisions can change. Confirm the current position with the named official source and use a licensed or qualified professional where your situation requires one. Kerala Rising does not decide whether you may qualify, approve claims, or promise an outcome.