Checklist 2025 of Section 194N

Also to be noted is the fact that section 194N of the Income Tax Act, 1961, has been causing major debate amongst individuals, small enterprises, banks, and other professionals since the usage of cash is still common in India. Even as the number of digital payments grows, cash withdrawals remain instrumental to many of the segments. It is crucial to know the rules, effects and compliance of Section 194N in 2025 as far as high-value cash transactions are concerned.

If you are a business owner, agriculturist, or someone in charge of household finances, the paper provides a detailed human-composed explanation of Section 194N TDS on cash withdrawal as it stands in 2025, real-wage scenarios, the practical advantages/ disadvantages, and helpful tips on practice, as a result.

What is Section 194N and Why it matters Now?

Section 194N deals with the deduction of tax at source (TDS) on cash withdrawals. Presented in the 2019 Union Budget and revised a few times since, well even in 2023 and 2024, this rule is expected to discourage excessive utilization of cash and would make a shift to digital transaction, besides maintaining the unaccounted money within limits.

When there will be increased surveillance and more advanced tax analytical software by the Income Tax Department in the year 2025, non-compliance or ignorance of the Section 194N rules could warrant notices, penalties, and the disruption of the business.

Under Section 194N, banks, cooperative banks, and post offices are under an obligation to deal with TDS in case the cash withdrawals of one or more accounts surpass a specified limit in one financial year.

So Who is the Section 194N?

• Decisions by people and HUF to withdraw large amounts of cash
• Small size firms that transact a lot of business in cash payments
• Farmers and traders get very high money payments
• Cooperative organizations and trusts
• Money lenders and economic planners

As CA Nidhi Agarwal remarks, “Mass numbers of small traders and people in rural businesses have no idea that small amounts of cash withdrawals made to all their bank accounts also add up to their annual TDS limit in section 194N.”

What are some of the Key Provisions and thresholds under Section 194N?

Section 194N Pertinent Aspects and Highlights in 2025 are the following:

• Threshold Limit: Cash withdrawal beyond 1 crore in an FY will be charged at 2 percent TDS.
• Reduced Limit for Non-filers: For those not filing Income Tax Returns (ITR) for the previous 3 years, the TDS threshold drops to ₹20 lakh, with 2 percent TDS from ₹20 lakh to ₹1 crore, and 5 percent above ₹1 crore.
• Responsibility to deduct tax: The Cooperative Bank, the post office or the bank you get cash out of.
• Applicability: Individual, HUF, partnership firm, AOP, companies and trusts.
• Exemptions: Central and state governments, ATM operators, and specified commission agents (some agriculturists or white label ATM operators) are exempt after due process.

It so happens that you know? In case you have different accounts opened in the same bank, the withdrawals that you make in all the accounts are combined to verify the TDS threshold that should be deducted under Section 194N.

Comparison Table - TDS on cash withdrawal 2025

Informed Comment: The bank has the authority to verify your PAN and ITR status in an automated centralised system and hence trying to evade the regulations by addressing it via various branches seldom pays off.

What will it cost various individuals and companies to be under Section 194N in 2025?

Yes, the provision affects all the people who will go beyond the withdrawal limit but government has left some exemptions to safeguard legitimate interests:

• Farmer groups and commission agents selling produce: They are agents of produce as provided under the recommendation to any of the market committees, may apply for exemption.
• Small Businesses: Where the shopkeeper or the small business with no formal digital structure engages in high value withdrawal, this may cost additional amount since less net cash in hand could be available considering net cash in hand is reduced by Section 194N, in case of repeated large scale withdrawal.

Important Pros and Cons of Section 194N -2025 Perspective

Pros:

• Deters hoarding of cash and huge non-traceable deals.
• Promotes cashless transactions, and open bookkeeping.
• Encourages formalisation of business and bank records.

Cons:

• Businesses involving genuine cash transactions are placed under compliance strain.
• Added expense of TDS in case it is not planned properly.
• Even after filing ITR refund can only be claimed which blocks working capital.

Questions Other People Ask:

Q: Am I allowed to claim a refund of TDS deducted u/s 194N?
A: Yes but only after making your income tax filing and as long as you can show that the income was not taxable, or tax was over-deducted.

How is Section 194N TDS in 2025 to be Done Step by Step?

Automated platforms that are available to the banks:

• Sum withdrawals in your all eligible accounts.
• Inquiry of ITR filing status with attached PAN databases.
• When you exceed the limit, deduct TDS on the amount that you withdraw.

At a personal and corporate level:

• Monitor your cumulative cash withdrawal of the year.
• Look at ITR filing in last 3 years- non filers have lower threshold.
• All accounts are to be updated in PAN.
• TDS certificate (Form 16A) provided by the bank for amount deducted.

Interestingly enough… In case of having more than one account in different banks, a bank does not check what is withdrawn by the other banks. It is up to you to aggregate and report across banks as far as compliance.

Real Life Experiences: How the People Get Away With Section 194N?

Reports by a number of the tier 2 cities small business owners were as follows:

• Alarm: Failure to realise that sum total of withdrawals of cash out of various bank accounts indeed exceeded 1 crore and hence an abrupt loan of TDS.
• Solution: Began planning transactions, switching to online payments with key suppliers or asking that you receive staggered payments on monthly basis.

One farmer in Punjab said:

• Issue: TDS deducted out of crop payment was withdrawn in cash form even though the business was functioning on seasonal cash in hand.
• Solution: Brought the appropriate qualifying documentation forward to claim exemption as a registered commission agent and this was granted however this came after 2 months.

The solution of the majority of problems was carried out through:

• Listing withdrawals by keeping a sharp record of them.
• Where practicable, switching to digital modes.
• Playing on the services of local CAs or going online and using software to fill an online tax filing form.

Professional Tip: It can be advised by the tax consultants to track total withdrawal versus limits by using online calculators or SMS messages by the banks to avoid unintentional occurrences of TDS.

The following are the ways that can be adopted to avoid, reduce or manage legally section 194N TDS.

• Restrict the amount of cash that is withdrawn to keep the amounts on a yearly basis.
• Encourage the use of cheque, RTGS, NEFT, UPI or IMPS payments of business and personal expenditure.
• Ensure filing ITR of previous three financial years so as to retain 1 crore ceiling.
• Advance documentation of up to date records should also be submitted by the exempt entities to the bank.
• In case of incorrect deduction, get refund by filing your ITR and stating TDS.

Practical hint: Online marketplaces allow contrasting digital payment solutions provided by various service providers interested in offering business solutions that would help them to have minimum dependence on cash.

People ask me:

Q: What happens in case my TDS has been incorrectly deducted, under Section 194N?
A: You will be able to claim a refund on filing income tax and by producing evidence.

Section 194N in comparison with other related TDS Sections

One specific aspect of the section 194N is that it is not a tax on income, and it is a tax based on cash movement. The other sections such as 194A or 194C work on interest income or payments to a contractor. Section 194N would be applicable even in case your money is withdrawn as a fully tax-paid amount for family or business use. Evidence of this is seen in this concise comparison:

Have you known? Section 194N differs with most of the sections which tax income at the time of earning by concentrating on the stage of withdrawal.

Section 194N in 2025 Highlights and Compliance Checklist

Key Features

• Limits are rather vigilantly policed; the total withdrawals across the accounts and branches count.
• Digital withdrawals (including from own ATMs) are also counted.
• TDS gets auto-credited against your PAN which is visible in Form 26AS in couple of days.
• ARAC is subjected to due process through ITR filing in order to obtain a refund.

Compliance Checklist On Section 194N

• Continuously keep track of cash withdrawals each April to March financial year.
• Keep three years ITRs filed to bring up the threshold.
• In case an individual is qualified, present evidence of share exemption to bank.
• Make PAN KYC current in all banks.

People also get asked:

Q: Cash Is D.P.D.?
A: No. It does not apply to deposit of cash but the cash withdrawn which is in excess of the withdrawal threshold.

TLDR / Short Summary

TDS is required under Section 194N of Income Tax Act on withdrawal of cash above 1 crore by the regular ITR filers and 20 lakh by non filers. It is directed at curbing cash dealings whether they are big or small, providing greater visibility and promoting electronic payments. The rest, businesses and individuals should pay attention to annual cash withdrawal patterns, be regular in filing tax, and acquire online methods of payment where appropriate. TDS deducted refund can be claimed in ITR filing.

Your TDS exposure can keep track with the use of online platforms and with the accounting solutions, and also through the advice of local CAs.

People Also Ask (FAQ) for Section 194N

Q1: What is the procedure to know whether my cash withdrawals are over the limits set in Section 194N?
A: Monitor Total annual cash withdrawals in bank accounts as well as post office accounts. This is achieved by many banks now in the form of SMS alerts or with dashboards avaliable in online banking.

Q2: In what situation is Section 194N TDS not levied?
A: No TDS unless annual limit exceeded, or you are exempted e.g. government offices, some agricultural/fishermen agents provided papers.

Q3: Is a salaried individual liable to deem Section 194N TDS as well?
A: Yes, in case total cash withdrawals, over the year, out of all accounts exceed the threshold, regardless of the account type.

Q4: Is withdrawal of cash on TDS over and above my tax liability?
A: No, that is not final tax. When there is excess deducted, claim refund of ITR as is done to other TDS amounts.

Q5: What time is my tax record updated in Section 194N TDS?
A: Typically within: one week in Form 26AS or Annual Information Statement after bank reports to IT department.

Q6: Are the 1 crore withdrawal limit limits sharable between family members?
A: No, each PAN is associated with threshold. There is a different annual limit by each individual or entity.

Q7: Which are some reliable sources to benchmark banking compliance solutions or professional advice online of India?
You can browse various online marketplace such as; Bank Bazaar, Paisa Bazaar, or CA services portal where various products and advisory services are compared in a single roof.

Sources:

• Income Tax India, S. 194N
• Highlights of Union Budget 2024 on Section 194N
• CBDT Guidelines on section 194N