Cash Withdrawal Tax Changes - New Income Tax Act 2025

Big Changes in Cash Withdrawal Tax

New Income Tax Act 2025 Explained

If you frequently withdraw large amounts of cash from your bank account, you need to be aware of the significant changes introduced under the New Income Tax Act 2025. Starting April 1, 2026, rules have been simplified but strict penalties remain for inoperative PANs.

The Core Update: What Changed on April 1, 2026?

Under the previous Income Tax Act (1961), your TDS (Tax Deducted at Source) limit depended on whether you filed your Income Tax Returns (ITR) for the last three years.

The New Rule (Section 393(3) of Income Tax Act 2025):

The government has removed the distinction between ITR filers and non-filers. There is now a uniform threshold for everyone.

Key Highlights

  • Universal Limit: TDS is now applicable only if your aggregate cash withdrawals exceed ₹1 Crore in a financial year.
  • No More 5% Slab: The higher rate of 5% (previously applicable to non-filers) has been scrapped. The standard rate is now 2%.
  • Lower Limit Removed: The ₹20 Lakh threshold for non-filers is gone. Withdraw up to ₹1 Crore tax-free even without past returns, provided your PAN is active.
  • Inoperative PAN Penalty: If your PAN is not linked with Aadhaar, the TDS rate jumps to a massive 20%.

Comparison: Old Rules vs. New Rules (2025 Act)

Feature Old Rule (Sec 194N) New Rule (Sec 393(3))
Applicability Date Before April 1, 2026 From April 1, 2026
Threshold (Regular) ₹1 Crore ₹1 Crore
Threshold (Non-Filers) ₹20 Lakh ₹1 Crore (Same for all)
TDS Rate 2% (above ₹1 Cr) 2% on amount exceeding limit
Max TDS Rate 5% (Non-filers) 2% (Standard)
Co-operative Societies Limit ₹3 Crore Limit ₹3 Crore
Invalid PAN Rate 20% 20%

Real-Life Example: Mr. Sharma

Scenario A: Active PAN
Total Withdrawal: ₹1.2 Crore | Taxable: ₹20 Lakh | TDS: ₹40,000 (2%)

Scenario B: Inoperative PAN
Total Withdrawal: ₹1.2 Crore | Taxable: ₹20 Lakh | TDS: ₹4 Lakh (20%)

Note: Always ensure your PAN is active to avoid this!

Frequently Asked Questions (FAQs)

1. Is the ₹1 Crore limit applicable per transaction?

No, the limit is aggregate per financial year (April 1st to March 31st). TDS applies once the total crosses ₹1 Crore.

2. Is the limit calculated per bank account or per bank?

It is per bank (PAN Level). Multiple accounts in one bank are added together. Separate banks (e.g., SBI and ICICI) provide separate ₹1 Crore limits.

3. Can I claim this tax back?

Yes. This is an advance tax. You can claim it as a credit/refund when you file your Income Tax Return (ITR).

4. Who is exempt from this tax?

Exemptions include Government bodies, Banks, Co-operative Societies, Post Offices, White Label ATM operators, and Authorized FFMCs.

5. Does this apply to ATM withdrawals?

Yes. All "cash" outflows, including ATM, bearer cheques, and over-the-counter withdrawals are included.