Why TDS Is Charged on Cash Withdrawals by Banks – Key Rules Explained

The purpose of introducing Section 194N is to curb heavy cash usage and support the shift toward a digital and transparent economy. According to this section, TDS is deducted on cash withdrawals from banks, co-operative banks, or post offices once the total amount goes beyond the set yearly limit. It covers a wide range of taxpayers—individuals, HUFs, businesses, companies, and trusts—so knowing how it works is crucial for compliance.

Where Section 194N Applies
Section 194N is triggered when cash is taken out from a scheduled bank, a co-operative bank, or a post office. TDS is deducted once the total cash withdrawn during the financial year exceeds the allowed limit.

Cash can be withdrawn through:

  • Self cheques

  • Bearer cheques

  • ATM withdrawals

  • Cash taken directly from the bank counter

Online transfers and digital payments are excluded from TDS.

TDS Rates and Limits
The applicable TDS rate depends on whether the taxpayer has filed income tax returns for the past three assessment years.

A. When the individual has filed Income Tax Returns for any of the previous three years

  • No TDS is applied until total cash withdrawals reach ₹1 crore in a financial year.

  • Once this limit is crossed, TDS is charged at 2% on the amount exceeding ₹1 crore.

Example:
If the total cash withdrawn is ₹1.30 crore, TDS @ 2% will apply on ₹30 lakh.

B. When the individual has not filed ITRs for all of the last three years

  • A 2% TDS rate applies on withdrawals above ₹20 lakh up to ₹1 crore.

  • A 5% TDS rate applies on any withdrawal amount beyond ₹1 crore.

Example:
Total withdrawal = ₹1.50 crore

  • 2% on ₹80 lakh (from ₹20 lakh up to ₹1 crore)

  • 5% on ₹50 lakh (amount beyond ₹1 crore)

Entities Exempt From Section 194N

TDS is not deducted on cash withdrawals made by:

  • Central and State Government bodies

  • Banks, co-operative banks, and post offices

  • Business correspondents operating for banks

  • White label ATM operators

  • Any person or class of persons specifically notified by the government

  • Certain commission agents/traders who withdraw cash on behalf of farmers

These exemptions are designed to keep essential services and banking operations running smoothly.

How Section 194N Works in Practice

How banks calculate TDS

  • Banks total all cash withdrawals across every account held by the user.

  • TDS is triggered immediately once the withdrawal crosses the applicable threshold.

  • PAN data is used to determine whether the person is an ITR filer or a non-filer.

  • Banks may request confirmation of ITR filing status to apply the correct rates.

  • The deducted TDS is reflected in Form 26AS or AIS and can be claimed in the income tax return.

Key Examples

Example 1: ITR Filer

Mr. A (who has filed ITRs) makes the following withdrawals:

  • ₹40 lakh

  • ₹35 lakh

  • ₹30 lakh
    Total = ₹1.05 crore
    TDS = 2% on ₹5 lakh = ₹10,000

Example 2: ITR Non-Filer

Ms. B (no ITR filed for 3 years) withdraws ₹55 lakh.
TDS = 2% on (₹55 lakh – ₹20 lakh) = ₹7,00,000

If she withdraws ₹1.40 crore:

  • 2% on ₹80 lakh

  • 5% on ₹40 lakh

Important Compliance Tips for Professionals

  • Make sure clients have filed their ITRs to avoid higher TDS rates.

  • Advise cash-heavy businesses to plan their yearly cash withdrawals carefully.

  • Track withdrawals from every account held in the same bank.

  • Review Section 194N entries in Form 26AS/AIS regularly.

  • Maintain proper records for audit purposes, especially for large cash withdrawals.

  • Remind clients that TDS is not an additional tax—it can be adjusted or refunded in the ITR.

Frequent Errors to Watch Out For

  • Thinking each account has a separate ₹1 crore limit—limits apply per bank, not per account.

  • Assuming TDS is charged only at the end of the year—it applies as soon as the limit is crossed.

  • Misunderstanding the difference between filer and non-filer status.

  • Failing to monitor withdrawals from all branches of the same bank.

  • Believing TDS is a permanent loss—it is actually claimable

 

 

Taxation of GTA Services under GST and Application of RCM

Definition of a GTA

A Goods Transport Agency is defined as a person providing road transport services for goods and issuing a consignment note.
If a transporter does not issue a consignment note, they are not considered a GTA, and their services are not liable to GST.
Thus, independent truck or tempo owners who do not provide consignment notes are typically not classified as GTA.

GST Taxability Framework for GTA Services (Revised up to 22.09.2025)

Tax Structure

Category GST Rate ITC Availability Person Liable to Pay Tax
RCM (Reverse Charge Mechanism) 5% ITC available to the recipient Recipient of service
FCM (Forward Charge Mechanism) 18%* Full ITC allowed GTA
FCM – Optional Concessional Rate 5% No ITC for the GTA GTA

*Prior to 22.09.2025, the applicable rate was 12% with ITC.

Key Points

A GTA must choose the Forward Charge option (18%) every year by submitting Annexure V on the GST portal.
If the GTA wishes to discontinue the option, Annexure VI must be filed; otherwise, the GTA will continue under the default RCM structure (5%).
Once selected, the option remains valid for the entire financial year.

GTA must also include a declaration on invoices when opting for Forward Charge.

Mandatory Invoice Declaration (for Forward Charge)

When a GTA chooses to pay GST under Forward Charge, they must include the declaration as specified in Annexure III of Notification 13/2017, inserted through Notification 5/2022–Central Tax (Rate) dated 13-07-2022 (effective from 18-07-2022).

Declaration:
“I/We have obtained registration under the CGST Act, 2017 and have opted to pay GST on GTA services for transportation of goods under Forward Charge from the Financial Year ______. We have not switched back to the Reverse Charge Mechanism.”

Liability to Pay GST under RCM

GST under the Reverse Charge Mechanism (RCM) becomes payable when the freight charges are borne by any of the following types of recipients:

  • A factory

  • A society

  • A cooperative society

  • A body corporate

  • A GST-registered person

  • A partnership firm or an Association of Persons (AOP)

  • A casual taxable person

If the freight is paid by an unregistered customer, the GTA will need to charge 18% GST under Forward Charge (only if the GTA has opted for FCM).
If the GTA has not opted for Forward Charge, the service continues to be exempt for unregistered recipients as per GTA provisions.

Situations Where RCM Does Not Apply

The Reverse Charge Mechanism (RCM) is not applicable to GTA services when goods are transported by road in a goods carriage to the following entities:

(a) Any department or establishment of the Central Government, State Government, or Union Territory;
(b) Any local authority;
(c) Any governmental agency,

provided that such entities are registered under the CGST Act solely for the purpose of TDS compliance under Section 51, and not for carrying out taxable supplies of goods or services.

Important Note

These services are exempt from GST under Entry 21B of Notification 12/2017, meaning no GST liability arises in such cases.

GTA Service Exemptions

The following categories of transportation services provided by a Goods Transport Agency remain exempt from GST:

  • Transport of agricultural produce

  • Milk, food grains, and salt

  • Organic manure

  • Newspapers

  • Relief or disaster-related materials

  • Defence-related goods transported for the Government

  • GTA services provided to an unregistered individual, including an unregistered casual taxable person

Place of Supply Rules for GTA Services

  • If the recipient is registered: The place of supply is the location of the recipient.

  • If the recipient is unregistered: The place of supply is the location where the goods are handed over to the GTA for transportation.