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Section 194A - TDS On Interest Other Than Interest On Securities

Updated on: May 21st, 2024

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5 min read

Section 194A deals with deduction of TDS on interest other than interest on securities like Interest on Fixed Deposits, Interest on Loans and Advances other than banks.

 

What is Section 194A?

  • This section is only applicable to a resident. Thus, the provisions of section 194A are not applicable in case of payment of interest to a non-resident.
  • Payments made to non-residents are also covered under TDS mechanism. However, tax in such a case is to be deducted as per Section 195.

When does TDS under Section 194A need to be deducted?

The payer/deductor shall deduct TDS if the amount of such interest paid or credited or is likely to be paid or credited in a financial year,  exceed

40,000 where the payer is

  • Banking company or any bank or a banking institution
  • Co-operative society engaged in the business of banking
  • Post office (on deposit under scheme framed and notified by Central Government).

5,000 in any other case

  • From FY 2018-19 onwards no TDS will be deducted on interest earned upto INR 50,000 by senior citizens. The interest amount should be earned from the following:
    • Deposits with banks;
    • Deposits with post offices
    • Fixed deposit schemes
    • Recurring deposit schemes

When is Tax deducted at NIL rate or lower rate?

This happens under the following scenarios:

When a declaration is submitted in form 15G/15H u/s 197A

If a declaration is submitted under Section 197A by the recipient to the payer along with his/her PAN, then no tax is deductible if the following conditions are satisfied:

  • Recipient is a person other than a company or firm
  • Tax on total income of the Financial year (FY) is NIL
  • Total income does not exceed the exemption limit (i.e. for AY 2024-25, Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is NOT applicable if the recipient is a resident senior citizen.
  • Such a declaration shall be given in duplicate form 15G (15H for senior citizens). In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors can submit the declaration.
  • Nominees of investors of SCSS can also produce the declaration at the time of payment after the death of the depositor.
  • On submission of declaration to the bank, bank shall not deduct tax (subject to the conditions) on payment of interest.

When an application is submitted in Form 13 under Section 197

  • As per provisions of Section 197, the recipient can apply in Form no.13 to the Assessing Officer to get a certificate authorizing the payer to deduct tax at lower rate (or deduct no tax, if certain conditions are satisfied).
  • There is no time limit for application and it can be filed at any time before actual deduction of tax. If the recipient does not have PAN, he cannot apply for the certificate.
  • The certificate shall be issued, directly to the person responsible for paying income, under an advice to the applicant.
  • The certificate cannot be issued with retrospective effect. It shall have a validity from the date of issuance till the end of the Financial Year. It won’t be issued for multiple FYs.
  • The recipient may furnish copy of such certificate to the person responsible for paying the income for lower/no deduction of tax at source.

What is the rate of TDS?

Following are the applicable rates of taxes:

  • 10% when the PAN is furnished (the rate is 7.5% for interest credited from 14th May, 2020 until 31st March, 2021 as a COVID-19 relief measure);
  • 20% if the PAN is not provided.
  • No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

What is the time limit for depositing TDS ?

  • Tax Deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax Deducted in the month of March is to be deposited on or before 30th April.
  • For example, tax deducted on 25th April is to be deposited on or before 7th May and tax deducted on 15th march is to be deposited on or before 30th  April.

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Frequently Asked Questions

What is Section 194A?

Section 194A covers the provision for TDS deduction on interest other than securities. This means it covers interest earned on fixed deposits, recurring deposits, unsecured loans and advances, etc.

Who is liable to deduct TDS under Section 194A?

Any person, other than an individual or a Hindu undivided family, making the payment of interest, other than interest on securities. In the case of individual or a Hindu undivided family, only if they are carrying of business or profession having gross receipts or turnover of more than Rs.1 crores or Rs.50 lakhs respectivley are liable to make TDS.

Is interest paid to partners deducted under Section 194A?

No, according to Section 194A, interest paid by the partnership firm to its partners is exempt from TDS deduction.

When TDS under Section 194A is to be deducted?

The general rule is that the payer has to deduct TDS if the amount of such interest paid or credited is more than Rs.5000 in a financial year. But. in case of the payer being a Bank, Cooperative society, or Post office – the TDS will be deducted only if the interest is more than Rs. 40,000 / 50,000 for senior citizens in a year.

When TDS under Section 194A is to be deducted?

The general rule is that the payer has to deduct TDS if the amount of such interest paid or credited is more than Rs.5000 in a financial year. But if the payer is a Bank, Cooperative society, or Post office, the TDS will be deducted only if the interest is more than Rs. 40,000 / 50,000 for senior citizens in a year.

Is interest from savings banks subject to TDS under 194A?

No, only fixed deposit and recurring deposit interest will be covered under this limit. Interest on saving bank accounts is exempt from TDS rules.

What is the rate of TDS under Section 194A?

The rate of TDS is 10% when the PAN is provided by the payee. This rate was 7.5% for interest credited from 14th May, 2020 until 31st March, 2021 as a COVID-19 relief measure by the government.
 

Which interest incomes are not covered under Section 194A?

There are exceptions to this rule of TDS which means in certain scenarios no TDS will be deducted from  the interest income:

  • Interest earned on a saving bank account
  • Interest on income tax refund
  • Interest paid by partnership firm to partner is also not subject to TDS 
  • Interest paid to any bank, LIC, UTI or any insurance company
  • Interest paid by co-operative society to any member or any other co-operative society. However, there was an amendment to this, which was if the co-operative society’s last year’s turnover is more than Rs.50 crore, then TDS will be deducted if the interest paid is more than Rs. 50,000 to senior citizens and Rs.40,000 in the case of others.
  • Interest paid by primarily agricultural society, primary credit society, cooperative land mortgage bank, or a cooperative land development bank on the deposits held by them
  • Interest on compensation amount awarded by the Motor Accidents Claims Tribunal where compensation does not exceed a sum of Rs. 50,000
  • Interest on Zero-Coupon Bonds issued.
Is TDS applicable on EMI of Home Loans?

TDS on the interest portion needs to be deducted under section 194A. i.e., if the EMIs are paid to any nationalized banks, then TDS provisions are not applicable. Other Non-Banking Financial Institutions like Reliance Capital, LIC Housing Finance, etc., are not exempt from section 194A.

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