TDS stands for tax deducted at source. As per the Income Tax Act, 1961( IT Act, 1961) TDS is an indirect way of collecting tax which combines the twin concept of “pay as you earn” and “collect as it is being earned” The concept of TDS  was introduced with the aim to collect tax from the very source of income.

Withdrawing cash and not filing  ITR?

Section 194N of the IT Act, 1961  for TDS on cash withdrawal was introduced by Finance Minister in the Union Budget 2019 for withdrawals exceeding 1 crore at the rate of 2% to discourage cash payments. The different provisions of Section 194N are discussed further.

The scope of Section 194N(IT Act, 1961) has been amended by Union Budget 2020. Earlier only a single TDS rate and single threshold limit were prescribed for deducting tax on cash withdrawal. The following changes have been made-

  • If the withdrawer has not filed his income tax return for three financial years and withdrawal during the year exceeds Rs. 20 lakhs- TDS at the rate of 2% shall be deducted. However, if the amount of withdrawal exceeds Rs. 1 crore- TDS at the rate of 5% shall be deducted.
  • If the withdrawer has filed his income tax return for the given year- No TDS deduction is applicable. However, if the amount of withdrawal exceeds Rs. 1 crore- 2% of TDS on the amount above 1 crore shall be deducted.

However, the tax so deducted on cash withdrawal can be claimed as a credit at the time of filing of ITR.

Who is required to deduct tax?

The person making cash payment is required to deduct TDS under Section 194N. Following is the list of such persons-

  • every banking company,
  • cooperative bank or
  • post office

to deduct tax cash withdrawals by any person from his account maintained with such a bank or post office. To make this process simplified, CBDT has introduced an e-filing platform which enables the banking company or cooperative bank or post office to know whether the person withdrawing cash within the limits or not.


Every assessee whose TDS has become deducted will have to file his/her return in accordance with the following due dates-

1st Quarter April-June 30 June 2020 31st March 2021
2nd Quarter July-September 30 September 2020 31st March 2021
3rd Quarter October-December 31st December 2020 31st January 2021
4th Quarter January-March 31st January 2021 31st May 2021


The Government introduced the above section in order to discourage cash transactions in the country and promoting digital transactions. This will also be beneficial in eliminating black money from the country.


The above amendment is applicable with effect from July 1, 2020.

The section will apply to withdrawals made by taxpayers who are an individual, A Hindu Undivided Family (HUF), a Company, a partnership firm, or an LLP, a local authority, an Association of Person (AOPs) or Body of Individuals (Bois).

The following persons/ entities are exempted from TDS on cash withdrawal:

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