Cash withdrawals are a routine part of business and personal finances. However, under the Income Tax Act, 2025, withdrawing a large amount of cash from your bank account may attract Tax Deducted at Source (TDS) under certain conditions.
TDS on cash withdrawals is governed by Section 393(3) (Table Sl. No. 5) of the Income-tax Act 2025. Under this provision, banks are required to deduct TDS when cash withdrawals exceed the prescribed limit.
Note: The examples in this article are based on an individual taxpayer carrying on business (other than a co-operative society). Different threshold limits apply to co-operative societies.
Many taxpayers are surprised when they notice that the bank has deducted tax from their cash withdrawal.
What You’ll Learn in This Article
In this practical case study, you will learn:
- When TDS applies to cash withdrawals.
- The cash withdrawal limits under the Income Tax Act 2025.
- How banks calculate TDS on cash withdrawals.
- Whether TDS is deducted on the entire withdrawal amount.
- How to claim credit for TDS deducted.
- Common mistakes taxpayers make regarding cash withdrawals.
Let’s understand what happened in Mr. Rajesh’s case and how the Income Tax Act provides for TDS on large cash withdrawals.
Mr. Rajesh’s Situation
Mr. Rajesh is a wholesale trader operating his business in Jaipur.
During the tax year 2026-27, by the end of the quarter ending June 2026, he frequently withdrew cash from his current account to make cash payments to suppliers and workers.
By the end of the Quarter June 2026, the total cash withdrawn from his bank account reached Rs. 1.20 Crore.
However, while checking his bank statement, he noticed that the bank had deducted TDS from one of his withdrawals.
Naturally, several questions came to his mind.
- Why has the bank deducted TDS?
- Is TDS deducted on the entire Rs. 1.20 Crore?
- How is TDS calculated?
- Can I claim this TDS while filing my Income Tax Return (ITR)?
If you also withdraw large amounts of cash, you may have similar questions.
The good news is that TDS is not deducted on the entire cash withdrawal. It is calculated only after crossing the prescribed threshold provided under the Income Tax Act 2025.
Cash withdrawal Limits and TDS Rate
- No TDS is deducted until aggregate cash withdrawals exceed Rs. 1 crore during the tax year.
- TDS is deducted only on the amount exceeding Rs. 1 crore.
- TDS Rate is – 2%
Let’s understand Mr. Rajesh’s case step by step.
Mr. Rajesh’s Cash Withdrawal Details
| Particulars | Amount |
| Total Cash Withdrawn During the Quarter ended June-2026 | Rs. 1,20,00,000 |
| Prescribed Threshold Limit | Rs. 1,00,00,000 |
| Amount Exceeding Threshold Limit | Rs. 20,00,000 [ Rs. 1,20,00,000 minus Rs. 1,00,00,000] |
| TDS Rate | 2% |
Step 1: Calculate Total Cash Withdrawal
During the tax year 2026-27, by the end of the quarter ending June 2026, Mr. Rajesh withdrew cash several times from his current account.
The total cash withdrawn during the quarter was:
Total Cash Withdrawal = Rs. 1,20,00,000
Step 2: Identify the TDS Threshold
The Income Tax Act 2025 does not charge TDS on your first cash withdrawal. Banks deduct TDS only after your total cash withdrawals during the year exceed the prescribed limit.
Threshold = Rs. 1,00,00,000
Therefore,
| Particulars | Amount |
| Total Cash Withdrawn | Rs. 1,20,00,000 |
| Threshold Limit | Rs. 1,00,00,000 |
| Excess Withdrawal | Rs. 20,00,000 |
Step 3: Calculate TDS
TDS applies only to the amount exceeding Rs. 1 crore, not to the entire cash withdrawal.
Calculation:
2% × Rs. 20,00,000 = Rs. 40,000
Therefore,
TDS Deducted = Rs. 40,000
Step 4: Amount Received by Mr. Rajesh
| Particulars | Amount |
| Cash Withdrawn | Rs. 1,20,00,000 |
| Less: TDS Deducted | Rs. 40,000 |
| Net Cash Received | Rs. 1,19,60,000 |
The bank deposited the deducted TDS with the Income Tax Department in Mr. Rajesh’s PAN.
Step 5: Can Mr. Rajesh Claim This TDS?
Yes.
The TDS deducted by the bank is not an additional tax. It is merely tax deducted in advance.
Form 168 and the Annual Information Statement (AIS) reflect it.
Mr. Rajesh can claim credit for the TDS while filing his Income Tax Return (ITR).
Why Didn’t the Payer Calculate TDS on the Entire Rs. 1.20 Crore?
Many taxpayers believe that once they withdraw more than Rs. 1 crore, TDS is deducted on the entire withdrawal amount.
That is incorrect.
If your total cash withdrawals cross the prescribed limit during a tax year, the bank deducts TDS on the amount above that limit.
In Mr. Rajesh’s case:
- Total Withdrawal = Rs. 1.20 crore
- Threshold = Rs. 1 crore
- Excess Amount withdrawn above the limit = Rs. 20 Lakh
- TDS = 2% of Rs. 20 Lakh = Rs. 40,000
Common Mistakes Taxpayers Make
Many taxpayers make these mistakes:
- Many people mistakenly believe that banks deduct TDS on the entire cash withdrawal.
- Ignoring TDS entries reflected in their Form 168 and Annual Information Statement (AIS).
- Forgetting to claim TDS credit while filing the Income Tax Return (ITR).
- Many people think that banks never count cash withdrawals from different bank accounts together for TDS.
- Not maintaining records of business cash withdrawals.
TaxStudyOnline’s Final Takeaway
Before making large cash withdrawals, remember these important points:
- TDS applies only when your cash withdrawals exceed the allowed limit.
- TDS applies only to the amount exceeding the prescribed limit, not to the entire cash withdrawal.
- Maintain proper records of business cash withdrawals.
- Check your bank statement, Form 168, and the Annual Information Statement (AIS) to verify that your bank deducted the correct TDS.
- Claim the TDS amount as tax credit when you file your Income Tax Return (ITR).
Conclusion
Mr. Rajesh’s case clearly explains the calculation of TDS on cash withdrawals.
During the tax year 2026–27, a taxpayer withdrew Rs. 1.20 crore by the end of the quarter ending June 2026, TDS was not applied on the entire amount. TDS applied only to the Rs. 20 Lakh exceeding the Rs. 1 crore threshold, resulting in a TDS deduction of Rs. 40,000.
Understanding TDS rules for cash withdrawals helps you avoid mistakes, keep proper records, claim your TDS credit, and stay on the right side of the tax rules.
FAQs
1. Does the bank deduct TDS on the entire cash withdrawal amount?
No. Banks deduct TDS only on the amount that exceeds the prescribed threshold Rs. 1 crore.
2. What is the cash withdrawal limit before TDS applies?
TDS applies after aggregate cash withdrawals exceed Rs. 1 crore during the tax year.
3. What is the TDS rate on cash withdrawals above Rs. 1 crore?
Banks deduct TDS at 2% on the amount exceeding Rs. 1 crore.
4. Can I claim credit for the TDS deducted by the bank?
Yes. You can claim the TDS that the bank deducted as a tax credit when filing your Income Tax Return (ITR).
5. Does TDS on cash withdrawals mean I have to pay additional tax?
No. TDS is an advance tax deduction. Adjust it against your final tax liability when filing your Income Tax Return (ITR).
6. How can I avoid unnecessary issues with TDS on cash withdrawals?
Maintain proper records of cash withdrawals, file your Income Tax Returns (ITRs) on time, monitor TDS reflected in your Form 168 or Annual Information Statement (AIS) , and claim the correct TDS credit while filing your return.