Section 194A: TDS on Interest other than Interest on Securities:
TDS is deductible on interest against fixed deposits, recurring deposits, loans and advances of both a secured (for instance, against collateral) and unsecured nature.
- TDS Deductible on interest against securities are also considered under the TDS rules; however, the provisions with respect to that are covered under Section 193 of the Income Tax Act
- This section is only applicable to the residents of India. Hence, all the provisions are not applied to Non-Resident Indians.
- Payments made to NRIs are also subject to TDS deductions, but that portion is covered in Section 195 of the Income Tax Act.
- In case an individual or an entity who is to be assessed for such interest income is not liable to pay taxes since their incomes do not exceed the minimum income slab which is taxable as per the government regulations, the respective entities can submit a copy of either Form 15G (for resident Indians under the age of 60 and Hindu Undivided Families) or Form 15H (for resident Indians either turning 60 during the Financial Year or who have already turned 60) to the payer of the interest.
Who is required to deduct TDS as per Section 194A:
The following persons are required to deduct TDS according to section 194A:
- An individual or a Hindu Undivided Family provided that their sales/gross receipts/turnover from business or profession exceeds Rs. 100lakhs(in case of a business) and Rs. 50lakhs in case of services. Other individuals and Hindu Undivided Families are exempted from these provisions of Section 194A of the Income Tax Act.
. - All other entities described as “assessees” by the Income Tax Act of 1961, such as a Partnership, a Company, an Association of Persons (AOP) or a Body of Individuals (BOI)
Rates of TDS Deduction:
- In all the cases where the recipient of interest income can produce a PAN Card, the interest should be deducted at a rate of 10% according to the current governmental regulations. In all cases where the recipient cannot produce a PAN Card, a rate of 20% is to be applied while deducting the TDS.
- In the cases where the TDS is being collected by any entity other than banks, the income must exceed a minimum limit of Rs. 5000 for TDS to be collected in the absence of that, the TDS deduction will not apply.
- In all the cases where the entity providing the interest is either a Bank, a cooperative society undertaking Banking activities or a Post Office providing interest on deposits or schemes of the Central Government, the income in interest must exceed Rs. 40,000 for all type of payee ( Rs. 50,000 if payee is resident senior citizen) for TDS to be collected.
- These rates of TDS Deductions and income slabs are subject to change as per governmental regulations and can change with a change in laws or acts enacted in the Parliament.
- It must also be noted that no other rates of taxes can be added to this rate of tax deduction, for instance, education tax, secondary and higher secondary education tax or surcharge tax.
Example
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 years 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 on Zero Coupon Bonds
What is the limit for TDS on interest?
With respect to section 194A, where the entity providing the interest is either a Bank, a cooperative society undertaking Banking activities or a Post Office providing interest on deposits or schemes of the Central Government, TDS will be deducted where the income in interest exceeds Rs. 40,000 for all the types of payee ( Rs. 50,000 if payee is a resident senior citizen) , While in all other cases Rs. 5000 is the limit. Further, in case interest on saving banks accounts are not subject to TDS deduction under section 194A.
Due date of TDS deposit and Filing of TDS returns:
The Deductor is liable to deposit TDS with the Government with following dates
| Particulars | Due date of Deposite |
|---|---|
| April-February | 7th of Next following next Month |
| March month | 30th April |
The Deductor is liable to File TDS Returns with the Government with following dates
| Quarter | Due Date for Return |
|---|---|
| April to June | 31st of July |
| July to September | 31st of October |
| October to December | 31st of October |
| January to March | 31st of May |
