Section 194A – TDS on Interest other than Interest on Securities

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.

Need Help Filing your TDS Return?
You can get in touch with us at tds@cleartax.in or give call us on 080  67458727, for all TDS related queries.

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