Section 194A of Income Tax Act 1961 deals with the deduction of tax at source from interest other than interest incurred on securities. The tax payable under this section is subject to applicable rates specified in the Act, and has to be deducted while making such payment or at the time of credit of such income to the account of the payee/recipient, whichever is earlier.
Section 194A of Income Tax Act: What is it?
Section 194A of Income Tax Act provides for the deduction of tax at source on interest income, apart from interest on securities. This includes payments made as interest on loans and advances (not banks), fixed deposits, recurring deposits etc., to a resident of India. Interest earned by non-residents is subject to provisions laid down under section 195 of the Income Tax Act.
This section applies when a resident pays interest other than interest on securities. It must be noted that the liability for the deduction of taxes lies with the deductor and not the deductee. However, this is subject to certain conditions mentioned hereunder.
Section 194A of Income Tax Act: When is it deducted?
TDS must be deducted as per the provisions of the section when interest income is credited. If the payer is a banking company that comes under Banking Regulation Act, 1949 or if it is a cooperative society engaged in carrying out banking business, then TDS should be deducted when the amount exceeds Rs 40,000 (in the case of senior citizens, where the age is over sixty years, the limit is Rs 50,000.
In any other case, TDS should be deducted when the amount exceeds Rs 5,000. Therefore, it is important to ensure that TDS is deducted from interest income in accordance with these provisions.
However, interest in securities is not under the 194A section. Also, note that the TDS under Section 194A is deducted only when payment is made to a resident.
Also, note that no tax is deductible when a person submits declaration to a concerned payer under Section 197A with her PAN.
Section 194A of Income Tax Act: TDS deduction requirement
Under Section 194A, TDS must be deducted by persons other than individuals or Hindu Undivided Families (HUFs) on interest income. Moreover, individuals or HUFs whose total sales, gross receipts or turnover from their business exceed the monetary limits specified under section 44AB of the IT Act in the preceding financial year are also required to deduct TDS.
Section 194A of Income Tax Act: Rate and time
The rate of the tax deduction on interest income under Section 194A is 10% if the PAN of the deductee has been provided and 20% if no PAN has been provided. Furthermore, this deduction is made at the basic rate with no additional surcharges applicable.
TDS on interest income under Section 194A is deducted either at the time of payment of such interest income or when it is credited to the account of the recipient, whichever happens first.
Section 194A of Income Tax Act: Exemptions
Exemptions for TDS on Interest apply to:
When interest is paid to,
- LIC
- The Unit Trust of India
- An insurance company or cooperative
- Any central or state financial corporation
When a firm pays or credits interest to its partner, TDS is not taken into account.
Section 194A of Income Tax Act: TDS payment procedure
The person responsible for deducting TDS must provide the necessary details to the Income Tax Department and pay the taxes accordingly. This information should include the name of the recipient, their PAN number, date and amount of deduction. Upon receipt of this information, the IT Department will update Form 26AS for the deductee.
- Once the TDS is paid, the deductor issues a TDS certificate. A deductee will get this TDS certificate on behalf of the concerned tax payment source.
Interest on non-deduction of TDS
If TDS is not deducted on time, 1.5% interest per month will be levied from the actual date of deduction to the actual date of payment.
Penalty for delayed payment of TDS
If TDS is not deposited on time, 1.5% interest per month will be levied from the actual date of deduction to the actual date of payment.
Section 194A: Deposit deadline
- The TDS must be deposited between April to February before the 7th of next month.
- The amount should be deposited on or before April 30 if the tax deduction takes place in March.
Latest News
No TDS on Mahila Samman Certificate interest under Section 194
May 19, 2023: Income earned through the Mahila Samman Savings Certificates will not attract TDS, according to a CBDT notification dated May 16, 2023. “In exercise of the powers conferred by sub-clause (c) of clause (i) of sub-section (3) of section 194A of the Income-tax Act, 1961, the Central government notifies that the Mahila Samman Savings Certificate, 2023, made in exercise of the powers conferred by Section 3A of the Government Savings Promotion Act, 1873, shall be a scheme framed for the purposes of said sub-clause,” the CBDT notification read.
FAQs
What is TDS on Interest?
TDS on Interest is the deduction of tax at source under Section 194A of Income Tax Act on income arising from interest other than that earned from securities.
What is the TDS rate for interest income?
The rate of the tax deduction on interest income under Section 194A is 10% if the PAN of the deductee has been provided and 20% if no PAN has been provided.
Are there any exemptions for TDS on Interest?
Exemptions for TDS on Interest apply when interest is paid to LIC, the Unit Trust of India, an insurance company or cooperative, any central or state financial corporation and when a firm pays or credits interest to its partner.
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