What is Section 194N?

Section 194N of the Income Tax Act, 1961, mandates banks, co-operative banks, and post offices to deduct TDS on cash withdrawals exceeding specified limits during a financial year.

What is the cash withdrawal limit for tax return filers?

For individuals who have filed their tax returns for the preceding three years, the limit is **₹1 Crore** per financial year, with a TDS rate of **2%** on the excess.

What are the rules for non-filers of income tax returns?

For non-filers, the threshold is lower: **₹20 Lakh**. TDS is **2%** on withdrawals between ₹20 Lakh and ₹1 Crore, and **5%** on withdrawals exceeding ₹1 Crore.

Can we claim a refund of TDS u/s 194N?

Yes. TDS deducted under Section 194N is credited to your PAN and appears in Form 26AS. It can be claimed as a tax credit or refund when filing the annual income tax return.

How do you record cash withdrawal TDS in Tally Prime?

Debit the **TDS Receivable u/s 194N** ledger (under Current Assets) and debit the **Cash** ledger, crediting the **Bank** ledger (F4 Contra or F7 Journal).

Section 194N Cash Withdrawal TDS: Rates & Limits

Corporate treasury operations sometimes require making large cash withdrawals to meet regional operating expenses or wage payments. Under Section 194N of the Income Tax Act, 1961, banks must deduct TDS on these withdrawals once they cross specified thresholds.

Understanding Section 194N limits, filing-status rules, and accounting procedures is essential to ensure compliance.

1. Section 194N Slabs (ITR Filers vs. Non-Filers)

TDS thresholds and tax rates are determined by the taxpayer's tax return filing history:

Taxpayer Status	Aggregate Withdrawal Threshold	TDS Rate (Excess over limit)	Tax Credit Recovery
ITR Filers (Filed last 3 years)	Up to ₹1 Crore	Nil	N/A
ITR Filers (Filed last 3 years)	Exceeding ₹1 Crore	2% on excess amount	Fully claimable in annual ITR
Non-Filers (Missed any of last 3 years)	₹20 Lakh to ₹1 Crore	2% on amount over ₹20 Lakh	Fully claimable in annual ITR
Non-Filers (Missed any of last 3 years)	Exceeding ₹1 Crore	5% on amount over ₹1 Crore	Fully claimable in annual ITR

2. Case Study: Withdrawing ₹1.2 Crore Cash

A company withdraws **₹1,20,00,000** in cash from its Axis Bank current account during the year to fund regional construction projects. The company has filed its tax returns on time for the last three years.

Under the Section 194N rules:

The bank applies the ₹1 Crore threshold for return filers. No TDS is deducted on the first ₹1 Crore.
For the ₹20,00,000 excess, the bank deducts 2% TDS, amounting to **₹40,000**.
The company receives ₹19,60,000 in cash, while ₹40,000 is deposited as TDS. The accountant records this transaction in Tally, debiting the cash and TDS receivable accounts.

Entry: Cash Withdrawal with Section 194N TDS (F4 Contra Entry)
Debit:  Cash Account                     ₹19,60,000
Debit:  TDS Receivable u/s 194N Ledger   ₹40,000
Credit: Axis Bank Current Account                 ₹20,00,000

3. Statutory Audits & Cash Book reconciliations

Statutory auditors verify large cash transactions u/s Section 40A(3) of the Income Tax Act, which disallows business expenses paid in cash exceeding ₹10,000 per day.

Auditors match bank statements to the cash book to verify that all deductions u/s Section 194N are supported by bank certificates (Form 16A), and check that cash balances were used for valid business purposes.

4. Setting Up TDS Receivable in Tally Prime

To manage TDS receivable natively in Tally:

Tally TDS Receivable Setup:

Go to **Gateway of Tally > Create > Ledger**. Create **TDS Receivable u/s 194N** under **Current Assets**.

When recording cash withdrawals, debit this ledger for the bank's tax deductions, ensuring easy reconciliation against Form 26AS at year-end.

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