Section 194EE: TDS on National Savings Scheme Withdrawals
Key point: Section 194EE of the Income-tax Act, 1961 required 10% tax deduction at source on specified National Savings Scheme (NSS) payments of Rs. 2,500 or more, subject to exceptions. A notification dated 4 April 2025 provides relief for qualifying individual NSS withdrawals made on or after that date. For payments from 1 April 2026, refer to the Income-tax Act, 2025 and its corresponding TDS provisions.
What is Section 194EE?
Section 194EE governed tax deduction at source when a person responsible for payment made a withdrawal payment described in section 80CCA(2)(a). It primarily concerned deposits under the National Savings Scheme, not every savings account or small-savings product. The payer was required to deduct tax at the time of payment, unless a statutory exception applied.
Meaning of the linked legal provisions
Section 80CCA(2)(a): addressed the taxation of specified withdrawals, together with interest, from deposits for which deduction had earlier been allowed under the National Savings Scheme provisions. Section 194EE: imposed withholding on such payments. Section 197A: provided for eligible declarations for non-deduction under the former Act, subject to prescribed conditions.
TDS rate, threshold and timing
| Item | Position under Section 194EE |
|---|---|
| Standard rate | 10% of the specified payment, subject to applicable statutory requirements |
| Threshold | No deduction where the payment or aggregate payments during the financial year were below Rs. 2,500 |
| Time of deduction | At the time of payment |
| Payments to heirs | No deduction under Section 194EE on the specified amount paid to the deceased depositor's heirs |
| Missing PAN | Higher-rate provisions could apply where applicable |
The threshold was expressed as less than Rs. 2,500. Thus, absent another exemption, a payment reaching Rs. 2,500 was not protected by that threshold.
Important relief for NSS withdrawals from 4 April 2025
The Income Tax Department's TDS guidance records that Notification No. 27/2025 dated 4 April 2025 provides non-deduction of TDS for specified withdrawals by individuals from NSS on or after 4 April 2025, covering eligible principal on which deduction under section 80CCA had been allowed and interest thereon. This relief should be checked against the notification and the particular deposit before withholding tax.
The absence of TDS does not, by itself, establish that a withdrawal is exempt from income tax. Taxability and withholding are separate questions.
Transition to the Income-tax Act, 2025
The Income-tax Act, 2025 applies to relevant withholding events from 1 April 2026. The former standalone TDS sections have been consolidated principally into section 393 of the new Act. Deductors should identify the relevant item and any applicable exemption under the new legislation and rules, rather than quote section 194EE as the operative section for a new 2026-27 deduction.
The Income Tax Department states that TDS obligations arising on or before 31 March 2026 are governed by the 1961 Act, while those arising from 1 April 2026 follow the corresponding provisions of the 2025 Act.
Examples
Example 1: Before the 2025 NSS withdrawal relief, a covered payment of Rs. 2,000 in a financial year would not trigger TDS under section 194EE because it was below the Rs. 2,500 threshold.
Example 2: Before that relief, a covered payment of Rs. 20,000, without another applicable exemption, would ordinarily attract Rs. 2,000 TDS at 10%.
Example 3: For a qualifying individual's NSS withdrawal made on or after 4 April 2025, the notification-based non-deduction relief must be considered even where the amount exceeds Rs. 2,500.
Official statutory references
- Income Tax Department: Section 194EE of the Income-tax Act, 1961
- Income Tax Department: TDS rates
- Income Tax Department: TDS transition and Income-tax Act, 2025 FAQs
- Income Tax Department: TDS compliance under the 2025 Act
Frequently asked questions
Is Section 194EE TDS 10% or 20%?
The rate under the later version of section 194EE was 10%. The earlier historical rate of 20% was reduced with effect from 1 June 2016.
Does Section 194EE apply to legal heirs?
The section expressly excluded the specified payment made to the heirs of a deceased assessee from deduction under that section.
Does no TDS mean the withdrawal is tax-free?
No. Whether a withdrawal is taxable must be determined separately under the applicable charging and exemption provisions.
Updated: 27 October 2026. This article provides general legal information; the precise treatment depends on the date, nature of the deposit, recipient and applicable notification.