Section 194a under Income Tax Act - TDS on interest

TDS Section 194A

TDS on Interest

Introduction to Section 194A

Section-194A of the Income Tax Act deals with the provisions regarding TDS to be deducted on interest payable like interest on fixed deposit, interest on loans, and Advances. Interest on securities is not covered under this section.

Payments made to non-residents are also covered under the TDS mechanism. However, tax in such a case is to be deducted as per Section 195.

Payment on which TDS needs to be deducted u/s 194A

  • TDS is required to be deducted under this section for payment made for interest to a resident person.
  • TDS is deducted u/s 194A only when payment is made to a resident, if such payment is made to a non-resident then tax is to be deducted u/s 195.

Who must deduct tax at source?

Any person (not being an individual / HUF), responsible for paying to a resident any income by the way of interest other than interest on securities, is responsible to deduct TDS u/s 194A and deposit the same to the Government Treasury within the time stipulated.

Deducting TDS under Section 194A

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, exceeds Rs. 40,000 where the payer is:

  • A banking company or any bank or a banking institution
  • Co-operative society engaged in the business of banking
  • Post-office (on deposit under a scheme framed and notified by Central Government).
  • 5,000 in any other case
  • From FY 2018-19 onwards TDS will not be deducted on interest earned upto Rs.50,000 by senior citizens. The interest amount should be earned from the following:
    • Deposits with banks
    • Deposits with post-office
    • Recurring deposit scheme
    • Fixed deposit schemes

Tax deducted at NIL rate or lower rate

Tax deduction at Nil or lower rate happens under the following scenarios:

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

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

  • A recipient is a person other than a company OR firm
  • Tax on total income of the previous year is NIL
  • Total income should not exceed the exemption limit (i.e., for AY 2016-17, Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is NOT applicable (NA) if the recipient is a resident senior citizen.
  • Such a declaration shall be given in duplicate form 15G (15H for senior citizens). In the 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, the bank shall not deduct tax (subject to the conditions) on payment of interest.

Rate of TDS interest

Following are the applicable rates of taxes:

10% (If PAN is furnished)Rs.5000Other than banks
20% (If PAN is not furnished)Rs.5000Other than banks
10% (If PAN is furnished)Rs.10000Banks
20% (If PAN is not furnished)Rs.10000Banks

Note: No surcharge, education cess, or SHEC shall be added to the above rates. Hence, the TDS will be deducted at the basic rate.

Time limit for depositing TDS under section-194A

The time limit for depositing TDS under Section 194A is listed below:

  • TDS 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 the 30th of April.
    • For e.g., tax deducted on 25th April is to be deposited on or before 7th May and tax deducted on the 15th march is to be deposited on or before 30th of April.

With that, we have come to an end of this post.

Share all your queries regarding this post with us in the comment section below.