With the Income-tax Act, 2025 coming into effect from April 1, 2026, taxpayers will notice several changes in the way income-tax provisions are referenced. One important change relates to TDS on cash withdrawals from banks, cooperative banks and post offices.
The earlier Section 194N of the Income-tax Act, 1961 has been reorganised under the new law. From April 1, 2026, the corresponding provision appears under Section 393(3) of the Income-tax Act, 2025, specifically Table Sl. No. 5.D(a) and 5.D(b). The underlying cash-withdrawal TDS framework, including the major thresholds and rates, has largely been retained.
This means people and businesses that make large cash withdrawals should understand the 2026 TDS rules, applicable thresholds, new payment codes and reporting requirements.
What Is TDS on Cash Withdrawal?
TDS, or Tax Deducted at Source, is collected by the bank, cooperative bank or post office when cash withdrawals cross the prescribed limit.
The provision is intended to discourage excessive cash transactions and encourage greater use of traceable and digital payment methods.
Importantly, TDS on cash withdrawal is not a separate tax on the money you withdraw. It is tax collected in advance and can generally be claimed as credit while filing your income-tax return, subject to the applicable rules.
The TDS is deducted by the bank, cooperative bank or post office, so the account holder does not have to separately calculate or deposit this TDS at the time of withdrawal.
What Has Changed From April 1, 2026?
The biggest change is the section number and reporting structure.
Under the Income-tax Act, 1961, TDS on specified cash withdrawals was covered by Section 194N.
Under the Income-tax Act, 2025, the corresponding provision is covered under:
Section 393(3), Table Sl. No. 5.D(a) and 5.D(b).
The Income Tax Department’s notified rules assign separate payment codes:
| Transaction | New Section Reference | Payment Code |
|---|---|---|
| Cash withdrawal where the deductee is a cooperative society | Section 393(3), Table Sl. No. 5.D(a) | 1064 |
| Cash withdrawal where the deductee is a person other than a cooperative society | Section 393(3), Table Sl. No. 5.D(b) | 1065 |
The official notified Income-tax Rules, 2026 list these codes against the respective cash-payment provisions.
So, while taxpayers may continue to search for “Section 194N TDS”, transactions governed by the new Act from April 1, 2026 should be identified using the new statutory references.
TDS Rate on Cash Withdrawals in 2026
For a taxpayer who has complied with the applicable income-tax return filing conditions, the standard rate remains 2% once the prescribed cash-withdrawal threshold is crossed.
For withdrawals covered by the general ₹1 crore threshold, the broad structure is:
| Cash Withdrawals During the Tax Year | TDS Rate |
|---|---|
| Up to ₹1 crore | No TDS |
| Amount above ₹1 crore | 2% |
The threshold is generally ₹1 crore for persons other than a cooperative society. For a cooperative society receiving cash payments in the relevant capacity, the corresponding threshold is ₹3 crore.
Lower Threshold for Certain Non-Filers of Income-Tax Returns
A lower threshold applies where the taxpayer has not filed income-tax returns for all three relevant previous assessment years for which the filing deadline had expired.
In such cases, the threshold can fall to ₹20 lakh.
The applicable rate is:
| Annual Cash Withdrawal | TDS Rate for Applicable Non-Filers |
|---|---|
| Up to ₹20 lakh | No TDS |
| Above ₹20 lakh and up to ₹1 crore | 2% |
| Above ₹1 crore | 5% |
The Income Tax Department confirms that the non-filer provisions continue to use the ₹20 lakh and ₹1 crore thresholds, with rates of 2% and 5% respectively.
Therefore, regularly filing your income-tax returns can be important if you or your business makes substantial cash withdrawals.
Is TDS Charged on the Entire Cash Withdrawal?
This is an important point that taxpayers should understand correctly.
Crossing the threshold does not mean that the entire amount withdrawn during the year automatically becomes subject to TDS. The statutory mechanism applies TDS according to the amount covered once the relevant threshold is crossed.
For example, under the standard ₹1 crore threshold, a taxpayer who crosses ₹1 crore in aggregate cash withdrawals becomes liable for TDS at the applicable rate on the amount covered by the provision.
Therefore, taxpayers should not assume that simply withdrawing a large amount means the entire cash withdrawal will be taxed as TDS.
Who Deducts TDS on Cash Withdrawals?
The responsibility for deducting TDS lies with the institution making the cash payment.
This can include:
- Public-sector banks
- Private-sector banks
- Cooperative banks
- Post offices
The calculation is based on the aggregate cash withdrawals during the applicable tax year, subject to the statutory conditions.
The Income Tax Department specifically states that TDS under the cash-withdrawal provision is deducted by banks, cooperative banks and post offices when the prescribed limits are exceeded.
Which Cash Withdrawals Are Covered?
The provision concerns cash payments from accounts maintained with the bank, cooperative bank or post office.
The calculation can take into account multiple cash withdrawals during the relevant year rather than looking at just one transaction.
Therefore, someone making several smaller cash withdrawals should also monitor the cumulative amount withdrawn during the year.
For example, if a business withdraws ₹20 lakh every few months, it should not look at each withdrawal separately. The aggregate cash withdrawal position is relevant for determining whether the prescribed threshold has been crossed.
Who Is Generally Exempt From TDS on Cash Withdrawals?
Certain categories are specifically kept outside the scope of the cash-withdrawal TDS provision.
These include specified withdrawals or payments involving entities such as:
- Government
- Banking companies
- Cooperative societies carrying on banking business
- Business correspondents of banks
- White-label ATM operators
- Certain other persons or categories notified by the government
The exemptions are designed to avoid applying the provision to specific operational and financial-sector transactions.
New TDS Codes for Cash Withdrawals From 2026
One of the practical changes taxpayers and banks need to note is the introduction of new payment codes under the Income-tax Act, 2025.
For cash withdrawals, the relevant codes are:
Code 1064
This code applies to cash payments by a bank, post office or cooperative banking society where the deductee is a cooperative society.
It corresponds to Section 393(3), Table Sl. No. 5.D(a).
Code 1065
This code applies to cash payments where the deductee is a person other than a cooperative society.
It corresponds to Section 393(3), Table Sl. No. 5.D(b).
These codes are particularly relevant for banks and other deductors while reporting TDS under the new tax framework.
What Happens to Section 194N After April 1, 2026?
Section 194N belongs to the Income-tax Act, 1961, which was repealed from April 1, 2026.
The corresponding cash-withdrawal provision has been moved into the new Act under Section 393.
The Income Tax Department has clarified that the new law reorganises the TDS provisions into a simplified tabular structure and that the TDS rates and monetary thresholds have largely been retained.
So, taxpayers should distinguish between:
Transactions governed up to March 31, 2026:
Old Income-tax Act, 1961 provisions apply.
Transactions from April 1, 2026:
Corresponding provisions under the Income-tax Act, 2025 apply.
How Will TDS Be Reported?
The new tax framework has also reorganised TDS reporting.
For resident-related TDS transactions covered under the relevant provisions, Form 140 is the new consolidated TDS statement corresponding broadly to the earlier Form 26Q framework.
The new payment codes are used to identify the nature of the TDS transaction in the reporting system. The Income Tax Department has introduced a broader restructuring of TDS forms and reporting under the Income-tax Act, 2025.
For cash-withdrawal transactions, the relevant payment codes are 1064 and 1065, depending on the category of deductee.
What Happens to the TDS Deducted From Your Cash Withdrawal?
TDS deducted by the bank is not necessarily your final tax liability.
The deducted amount can generally be reflected against your tax records and can be considered while filing your income-tax return.
Therefore, taxpayers should check their Form 26AS and other tax information statements to ensure that the TDS deducted by the bank has been properly reported.
If excess TDS has been deducted compared with your final tax liability, the applicable excess can potentially be claimed back through the income-tax return, subject to the normal rules.
Example: How Cash Withdrawal TDS Can Work
Suppose an eligible taxpayer who falls under the regular ₹1 crore threshold withdraws a total of ₹1.20 crore in cash during the tax year.
The applicable threshold is ₹1 crore.
The amount above the threshold is:
₹1.20 crore − ₹1 crore = ₹20 lakh
At a 2% TDS rate, the TDS on that excess amount would be:
₹20 lakh × 2% = ₹40,000
The actual application can depend on the taxpayer’s filing status, category and other statutory conditions.
What Cash-Heavy Businesses Should Keep in Mind
Businesses that regularly deal with cash should maintain proper records of:
- Cash withdrawals from each bank
- Cash deposited back into the bank
- Cash used for business expenses
- Invoices and supporting bills
- Employee or vendor payments
- TDS deducted by banks
- Form 26AS/AIS entries
- Income-tax return filing history
Maintaining a clear audit trail can make it easier to reconcile the cash withdrawals with the books of accounts and tax records.
Does TDS on Cash Withdrawal Mean the Withdrawal Is Illegal?
No.
There is no general rule that makes a cash withdrawal illegal simply because it is large. The TDS provision is a tax collection mechanism that applies once the specified conditions and thresholds are met.
However, large cash transactions can attract greater reporting and compliance attention. Therefore, taxpayers should ensure that the withdrawals are properly recorded and that the underlying source and use of funds can be explained when required.
Key Takeaways for Cash Withdrawals in 2026
The important points to remember are:
- Section 194N has been reorganised under the Income-tax Act, 2025.
- From April 1, 2026, the corresponding provision is under Section 393(3), Table Sl. No. 5.D.
- Payment code 1064 applies where the deductee is a cooperative society.
- Payment code 1065 applies to other deductees.
- The general threshold is ₹1 crore, with a ₹3 crore threshold for the specified cooperative-society category.
- Certain non-filers can face the lower ₹20 lakh threshold.
- The applicable TDS rate can be 2%, with 5% applying above ₹1 crore for the specified non-filer category.
- Banks, cooperative banks and post offices are responsible for deducting the TDS.
- Certain government, banking and other specified entities are outside the provision.
- Taxpayers should regularly check their Form 26AS/AIS for TDS credits.
Bottom Line
The transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 has changed the way taxpayers refer to several TDS provisions. For cash withdrawals, the familiar Section 194N has been reorganised under Section 393(3), with new table references and payment codes.
While the statutory structure has changed, the core cash-withdrawal TDS framework has largely been retained. Therefore, individuals and businesses making substantial cash withdrawals should keep track of their annual withdrawals, income-tax return filing status and TDS records.
Understanding the 2026 TDS rules on cash withdrawals can help taxpayers avoid unexpected deductions and ensure that their tax records remain properly reconciled.
Disclaimer: This article is intended for general informational purposes only. Tax provisions can vary depending on the taxpayer’s status, type of account, filing history and other applicable conditions. Readers should verify the latest provisions with the Income Tax Department or consult a qualified tax professional before taking any tax-related decision.