Section 194A : TDS on Interest other than Interest on securities

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By Hiral Vakil on March 9, 2019

As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.

However, in case of individual or HUF where the gross receipts or total sales or turnover of the previous year exceeds the monetary limits by way of business or profession provided u/s 44AB ( ie 1cr in case of business and 25 lakhs in case of profession) then both shall be responsible to deduct TDS on the payment of Interest.

When to deduct TDS under section 194A?

The TDS shall be deducted at the time of payment. The date of payment shall be considered earlier of the following:

  • ​Date of credit to the account of a payee or
  • ​Actual payment date or
  • Date of issue of the cheque, draft or any other mode.

Under this section if any sum payable by way of interest is credited to Interest payable account or suspense account or any other account by whatever name called the same shall be considered as deemed payment and TDS u/s 194A shall be deducted on the same.

What is the threshold limit under section 194A?

TDS shall not be deducted on an amount of interest falling below Rs 10,000 where the payee is:

  • Banking Company
  • Cooperative society engaged in Banking Business
  • Post office

In any other cases the threshold limit of Rs 5,000 shall apply.

TDS Rates under section 194A

  • TDS shall be deducted at the rate of 10% in a case where the payee is resident.
  • TDS shall be deducted at the rate of 20% in a case where the payee does not provide with the PAN.

Who is exempt from deduction of TDS on Interest u/s 194A?

Section 194A shall not apply in the following cases :

  • Interest is paid or credited to
    • Banking Company
    • Co-operative Bank
    • Public Financial Institutions
    • LIC
    • UTI
    • Company or Co-operative society carrying out a business of Insurance
  • Income paid or Credited by a firm to the partner of the firm.
  • Income paid/ credited by the co-operative society ( other than a co-operative bank) to its members or any other co-operative society.
  • Interest paid by the central government on the time deposits on the scheme notified in the official gazette
  • Credited interest on deposits ( other than time deposits ) by Banking company
  • Interest credited in respect of primary agricultural society or primary credit society or Co-operative land mortgage bank.
  • Any interest credited by Central government under the provision of following Acts
    • Income tax Act 1961
    • Estate duty Act 1953
    • Wealth tax Act 1957
    • Gift tax Act 1958
    • Super Profit Tax Act 1963
    • Companies (profit) surtax Act 1964
    • Interest- tax Act 1974
  • Interest on compensation awarded by way of Compensation awarded up to Rs 50000 by motor accident claims tribunal
  • Income/ Interest paid by companies or infrastructural companies on Zero Coupon Bonds
  • Interest referred in section 10 (23FC)

When is tax deducted at NIL Rate?

Tax is deducted at NIL rate, when a declaration is submitted in form 15G/15H. When form 15G/15H is submitted by the recipient then no need to deduct TDS if following conditions are satisfied:

  • Recipient is a person other than a Firm or Company
  • Tax on total income of the recipient for the Previous Year is NIL.
  • Total Income of the current year does not exceed the exemption limit. This condition is not applicable if the recipient is a resident senior citizen.

FAQs:

1. Is interest paid to NRI covered u/s 194A?

No, interest paid to NRI is not covered u/s 194A. Payments made to NRI are also covered under TDS. In case of NRI, tax is to be deducted as per section 195.

2. When to deposit TDS deducted u/s 194A?

Tax deducted during the month of April to February under section 194A should be deposited to the credit of the government on or before 7th of the next month. And tax deducted during the month of March should be deposited on or before 30th day of April.