Section 194A: TDS on Interest (Other Than Securities): Section 194A of the Income Tax Act governs the deduction of Tax Deducted at Source (TDS) on interest payments, except those related to securities. This applies to interest from banking, personal savings, and investments in India.
Who Must Deduct TDS:
- Any person (other than an individual or Hindu Undivided Family – HUF) responsible for paying interest must deduct TDS at 10%.
- Individuals and HUFs who are subject to tax audits under Section 44AB (due to business turnover exceeding ₹1 crore or professional income exceeding ₹50 lakh) must also deduct TDS on interest payments under Section 194A.
- TDS on interest paid to Non-Resident Indians (NRIs) is governed by Section 195, not Section 194A.
TDS Thresholds for Interest Payments:
₹40,000 Limit: TDS is deducted if interest paid or credited in a financial year exceeds ₹40,000. This applies when the payer is a:
- Bank or banking company.
- Co-operative society involved in banking.
- Post office (for deposits under schemes notified by the Central Government).
₹5,000 Limit: In other cases, TDS is deducted if the interest amount exceeds ₹5,000.
Senior Citizen Exemption: Since the 2018-19 financial year, no TDS is deducted on up to ₹50,000 in interest earned by senior citizens from:
- Bank deposits.
- Post office deposits.
- Fixed deposit schemes.
- Recurring deposit schemes.
Exemptions from TDS Under Section 194A:
Certain interest payments are exempt from TDS under this section, including:
- Interest on savings bank accounts.
- Interest on income tax refunds.
- Interest paid by a partnership firm to its partners.
- Interest paid to banks, Life Insurance Corporation (LIC), Unit Trust of India (UTI), or insurance companies.
- Interest paid by cooperative societies to their members or other cooperative societies.
TDS Rates Under Section 194A:
- The standard TDS rate on interest payments is 10% if the recipient provides their Permanent Account Number (PAN).
- If the PAN is not provided, the TDS rate increases to 20%.
Lower TDS Rate (Section 197):
Taxpayers can apply for a lower or zero TDS rate if their actual tax liability is lower than the TDS rate. To request this Lower TDS Rate (Section 197), they need to submit Form 13 to their Assessing Officer, who will review the case and issue a certificate specifying the reduced or nil TDS rate.
Avoiding TDS (Form 15G/15H):
Individuals whose total income is below the taxable limit can submit Form 15G (for those under 60) or Form 15H (for senior citizens) to the payer to avoid TDS deduction on interest, provided they meet the required conditions.
Time Limit for Depositing TDS:
- TDS deducted on interest must generally be deposited by the 7th of the following month.
- For TDS deducted in March, the deposit deadline is April 30th.
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FAQ’s :-Frequently Asked Questions
What is Section 194A of the Income Tax Act?
Section 194A mandates the deduction of Tax Deducted at Source (TDS) on interest payments, excluding interest on securities. This applies to interest earned from banking, savings, and investment sources.
Who is required to deduct TDS under Section 194A?
Any person, except individuals and Hindu Undivided Families (HUFs), paying interest must deduct TDS at 10%. However, individuals and HUFs under a tax audit (as per Section 44AB) must also deduct TDS on interest payments, even if they fall under exemptions.
Is TDS applicable to Non-Resident Indians (NRIs)?
No, Section 194A does not apply to interest payments made to NRIs. Such payments are governed by Section 195 of the Income Tax Act.
What is the threshold for TDS deduction under Section 194A?
TDS is deducted if interest exceeds ₹40,000 per year for payments by banks, co-operative societies, or post offices.
In other cases, TDS is deducted if the interest amount exceeds ₹5,000.
Are senior citizens exempt from TDS on interest payments?
Yes, since the financial year 2018-19, senior citizens are exempt from TDS on up to ₹50,000 in interest earned from bank deposits, post office deposits, fixed deposits, and recurring deposit schemes.
Are there any exemptions from TDS under Section 194A?
Yes, the following interest payments are exempt from TDS:
Interest on savings bank accounts.
Interest on income tax refunds.
Interest paid by a partnership firm to its partners.
Interest paid to banks, LIC, UTI, or insurance companies.
Interest paid by cooperative societies to their members or other co-operative societies.
What is the TDS rate under Section 194A?
The TDS rate on interest payments is 10% if the recipient provides their Permanent Account Number (PAN). If the recipient fails to provide their PAN, the TDS rate increases to 20%.
Can a taxpayer request a lower or zero TDS rate?
Yes, under Section 197 of the Income Tax Act, a taxpayer can request a lower or nil TDS rate if their actual tax liability is less than the standard TDS rate. The taxpayer needs to submit Form 13 to their Assessing Officer to obtain this certificate.
How can one avoid TDS on interest if their income is below the taxable limit?
Individuals can submit Form 15G (for those under 60) or Form 15H (for senior citizens) to the payer to declare that their total income is below the taxable limit. This prevents TDS deduction, provided all conditions are met.
What is the deadline for depositing TDS deducted on interest payments?
The TDS deducted on interest must be deposited by the 7th of the following month. For TDS deducted in March, the deadline is April 30th.
These FAQs simplify the key details of Section 194A regarding TDS on interest payments.
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