TAX ON CASH WITHDRAWAL FROM BANK NEW INCOME TAX RULES 2026 AND INCOME TAX ACT 2025
Under the Income-tax Act, 2025, the Tax Deducted at Source (TDS) on cash withdrawals (which was formerly governed by Section 194N) is now covered under Section 393(3) [Table: Sl. No. 5].
Here are the detailed rules, thresholds, exemptions, and examples for TDS on cash withdrawals:
1. The Governing Rule and Thresholds
If any person withdraws cash from one or more accounts maintained with a specified financial institution, the institution is legally required to deduct TDS on the withdrawal amount that exceeds the permissible threshold during the tax year.
The tax rate is 2% on the cash withdrawn in excess of the threshold limit.
The threshold limits depend on the type of recipient:
- For a Co-operative Society: TDS is deducted if the aggregate cash withdrawal during the tax year exceeds ₹ 3 Crores.
- For Any Other Person (Individuals, Companies, Firms, etc.): TDS is deducted if the aggregate cash withdrawal during the tax year exceeds ₹ 1 Crore.
2. Who is required to deduct the TDS (Payer)?
The responsibility to deduct this tax lies with:
- A banking company.
- A co-operative society engaged in carrying on the business of banking.
- A post office.
3. Exemptions (When is TDS NOT deducted?)
TDS on cash withdrawals will not apply if the cash is withdrawn by the following entities:
- The Government.
- Any banking company, co-operative bank, or post office.
- Any business correspondent of a banking company or co-operative society (as per RBI guidelines).
- Any white label automated teller machine (ATM) operator of a banking company or co-operative society.
4. TDS Return Section Codes
When the bank files its quarterly TDS returns or issues the TDS certificate, they must use the following new section codes under the 2025 Act:
- Code 1064: For cash withdrawals by a deductee being a co-operative society.
- Code 1065: For cash withdrawals by a deductee being any person other than a co-operative society.
Illustrative Examples
Example 1: Individual Cash Withdrawal (Code 1065) Mr. Sharma holds a savings and a current account with XYZ Bank. During the financial year 2026-27, he withdraws the following amounts in cash across both accounts:
- April 2026: ₹ 40 Lakhs
- August 2026: ₹ 50 Lakhs
- December 2026: ₹ 30 Lakhs
- Total Cash Withdrawn: ₹ 1.20 Crores.
Explanation: Since Mr. Sharma is an individual, the threshold limit is ₹ 1 Crore. The bank will not deduct any TDS up to ₹ 1 Crore. However, on the excess amount of ₹ 20 Lakhs (₹ 1.20 Cr – ₹ 1 Cr), the bank will deduct TDS @ 2%. TDS Deducted: 2% of ₹ 20 Lakhs = ₹ 40,000.
Example 2: Co-operative Society Cash Withdrawal (Code 1064) ABC Farmers Co-operative Society maintains its accounts with a public sector bank. For its operations, the society withdraws ₹ 3.50 Crores in cash during the tax year.
Explanation: For a co-operative society, the threshold limit is ₹ 3 Crores. The bank will deduct TDS @ 2% only on the amount exceeding ₹ 3 Crores, which is ₹ 50 Lakhs. TDS Deducted: 2% of ₹ 50 Lakhs = ₹ 1,00,000.
Amount to be Calculated in Excess of Rs 1 Crore
While the primary legislation under Section 393(3) of the Income-tax Act, 2025 establishes the 2% rate and the ₹ 1 Crore / ₹ 3 Crore threshold limits, the specific instruction that the tax is to be calculated strictly on the amount “in excess of” the threshold is explicitly written into the official procedural framework of the Income-tax Rules, 2026.
Specifically, this computational rule is formally written into the mandatory TDS reporting forms prescribed by the Central Board of Direct Taxes (CBDT) for banks and post offices:
(Note: The forms also contain a corresponding column specifically written for co-operative societies, which isolates the “Amount of cash withdrawal which is in excess of Rs. 3 Crore”).
What this means: In Indian tax law, the prescribed statutory rules and forms hold binding legal weight for how the Act is administered. Because the CBDT has officially designed the TDS return forms to only capture the “amount of cash withdrawal in excess of Rs. 1 crore,” it serves as the written legal directive to banks that the 2% tax must only be calculated on the amount that crosses the threshold, not the entire cash withdrawal.
Section 393 Income Tax Act 2025 Tax to be deducted at source.