Is TDS Applicable to a Business Current Account? Rules and Limits
June 16, 2025
A business current account does not attract TDS merely because you maintain money in it. Current accounts generally do not earn interest, so the usual TDS rules applicable to deposit interest ordinarily do not apply.
However, TDS may be deducted when your aggregate cash withdrawals cross the prescribed limit during a tax year. From 1 April 2026, these provisions fall under Section 393 of the Income-tax Act, 2025. They were previously covered under Section 194N of the Income-tax Act, 1961.
If you have filed the applicable income-tax returns, TDS is generally deducted at 2% on cash withdrawals exceeding ₹1 crore. If you have not filed any of the three relevant preceding returns, lower thresholds and higher rates may apply. For example, if an eligible non-filer withdraws ₹25 lakh during the year, TDS at 2% would apply to the ₹5 lakh exceeding the ₹20 lakh threshold. The resulting deduction would be ₹10,000.
When Is TDS Deducted on Cash Withdrawals from a Business Current Account?
For cash withdrawals made on or after 1 April 2026, the applicable provision is contained in Section 393 of the Income-tax Act, 2025. Section 194N remains relevant when referring to transactions governed by the earlier Income-tax Act, 1961.
| Return-filing status | Aggregate cash withdrawal | TDS treatment |
| Applicable returns filed | Up to ₹1 crore | No TDS under this provision |
| Applicable returns filed | Above ₹1 crore | 2% on the amount exceeding ₹1 crore |
| None of the three relevant preceding returns filed | Up to ₹20 lakh | No TDS under this provision |
| None of the three relevant preceding returns filed | Above ₹20 lakh and up to ₹1 crore | 2% on the amount exceeding ₹20 lakh |
| None of the three relevant preceding returns filed | Above ₹1 crore | 2% between ₹20 lakh and ₹1 crore, and 5% on the amount exceeding ₹1 crore |
Section 194N was introduced through the Finance Act, 2019 and became effective on 1 September 2019. Its scope was subsequently expanded through the Finance Act, 2020 to cover specified non-filers from 1 July 2020. TDS deducted on cash withdrawals is reported against the account holder’s PAN and can be claimed as tax credit while filing the applicable income-tax return. If the credit exceeds the final tax liability, the account holder may claim a refund, subject to the applicable tax rules.
Which Business Payments May Require TDS?
TDS may also apply to payments made through your business current account. The liability arises from the nature of the payment, not from the type of bank account used.
Common examples include:
From 1 April 2026, most non-salary TDS provisions are consolidated under Section 393 of the Income-tax Act, 2025. The applicable threshold and rate depend on the payment, recipient and other statutory conditions.
Income Tax Implications of Using a Business Current Account
Using a dedicated current account for your business has key tax implications beyond TDS:
- From one person in a day
- For a single transaction
- For transactions relating to one event or occasion
The restriction does not apply when the amount is received through an account-payee cheque, account-payee bank draft, prescribed electronic modes or other permitted banking channels. Certain persons and transactions are also excluded under the applicable provisions.
In short, any huge cash inflow or outflow via a business current account will be on the tax radar. As the Income Tax Department’s new “high-value transactions” monitoring notes, withdrawals or deposits above ₹50 lakh will be automatically tracked. If your business income doesn’t justify these sums, it could lead to questions or reassessment.
Final Thoughts
A business current account does not attract TDS simply because you use it for business transactions. However, TDS may apply when aggregate cash withdrawals cross the prescribed limits. Your business payments may also carry separate TDS obligations depending on their nature.
Maintain clear records, use the correct PAN, file your returns on time and reconcile deductions with Form 26AS and the Annual Information Statement. For transactions from 1 April 2026, refer to the relevant provisions of the Income-tax Act, 2025.
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