Section 194A talks about TDS payable on interest, except securities. This covers interest on fixed deposits, recurring deposits, unsecured loans and advances.
- Section 194A is only made available for residents. Therefore, the payment of interest to a non-resident is not provided in this section.
- Payment to a non-resident is included in the TDS mechanism, but the provisions concerned with it are only available in Section 195.
When is TDS deducted under Section 194A?
The payer must deduct TDS if the amount of interest that was paid or credited or is to be paid or credited in a financial year exceeds
Rs 40,000, where the payer is
- A co-operative society engaged in banking.
- A Post Office (on deposit under a scheme framed and notified by the central government).
- A bank or any banking institution.
Rs 5,000 in all other cases
From the 2018-19 financial year, no TDS will be deducted on any interest earned up to Rs 50,000 for senior citizens. This interest amount should be earned from the given ways:
- Bank deposits
- Post Office deposits
- Schemes for fixed deposits
- Schemes for recurring deposits
194A: Rates of TDS
Following are the rates of taxes:
- 10% if PAN is provided.
- 20 % if PAN is not provided.
- No education cess, surcharge or SEHC is to be added to the given rates. Tax gets deducted at source at the most basic rate.
194A: Time limit for TDS deposit
- Tax deducted during the month of April to February should be deposited before the 7th of the next month. Tax deducted in March is supposed to be deposited on or before 30th April.
- For instance, tax deducted on 26th April is to be deposited before 7th May and tax deducted on March 18th is to be deposited before 30th April.
Which interest incomes are not included under Section 194A?
There are exceptions to TDS rules in which case no tax will be deducted from the interest income:
- Interest from a savings bank account
- Interest from Income tax refund
- Interest paid to partners
- Interest paid to any bank, UTI, LIC or insurance company
- Interest paid by a co-operative society to another person in the same or different cooperative society. This was amended with the condition that if the overall turnover of the co-operative society is more than 50 Crore, then TDS will be deducted if interest paid is more than INR 50,000 to senior citizens and Rs 40,000 in case of others.
194A: Tax deduction at NIL or lower rate
Such a situation takes place in the given scenarios:
When one submits a declaration in form 15G/15H u/s 197A
If you submit a declaration under Section 197A by the payee to the payer along with their PAN, then tax cannot be deducted if:
- The payee is a person other than a company.
- Tax on the total income from the Previous Year (PY) is NIL.
- The total income does not go past the exemption limit. This condition is not applicable when it comes to a resident senior citizen.
- A declaration in such a case may be submitted under duplicate form 15G (15H in case of senior citizens). In case of the Senior Citizens Savings Scheme, 2004, (SCSS) the declaration can be submitted by investors.
- The nominees of investors of SCSS can also submit the declaration when it is time for payment, after the death of the investor.
- On submitting a declaration to the bank, the bank will not deduct tax (subject to specific conditions) on payment of interest.
When one submits an application under Form 13 under Section 197
- According to the provisions of Section 197, the payee can apply in Form 13 to the Assessing Officer to get a certificate that authorizes the payer to deduct the tax at a lower rate (or no tax, depending on if the conditions are satisfied).
- There is no time limit given to apply and can be done at any time before the deduction of tax. If the payee does not have a PAN card, they cannot apply for a
- certificate.
- The certificate will be given directly to the person who is responsible for paying income on a piece of paper, as advice to the applicant.
- The certificate cannot be given with retrospective effect.
- The payee can furnish a copy of this certificate to be given to the person responsible for paying income for lower or no TDS.
FAQs
Who is responsible for deducting TDS under Section 194A?
The person who is making the payment of interest other than the interest on securities is responsible for deducting TDS.
What are the rates of TDS according to section 194A?
TDS rate is 10% if PAN is provided by the recipient.