The concept of tax deducted at source came into the picture to make the process of collecting taxes more efficient and hassle-free. This involves the deduction of tax from the point of payment. This concept applies to several payments, such as salary, commission, interest, etc.
In this article, you will acquire a better understanding of TDS on interest (apart from interest on securities), which is a provision related to Section 194A of the Income Tax Act. Let’s dive deeper to know how Section 194A TDS deduction works, its rate, time limit, and more!
As mentioned before, Section 194A is connected with TDS deduction on the interest earned from fixed deposits, recurring deposits, etc. Note that this does not include interest on securities. Section 194A’s provisions are only applicable to the Indian residents. In the case of non-residents, TDS deduction is available under Section 195.
Now, in case you are wondering who all are responsible for deducting TDS on interest apart from securities, refer to the following section.
Under Section 194A, TDS or tax deducted at source on interest other than interest on securities are applicable to the following persons:
One should also note that as per the announcement in FY2018-19, TDS gets deducted on interest of up to Rs. 50,000 earned by senior citizens. As stated before, the interest amount must be earned from deposits with post offices, banks, recurring and fixed deposit schemes.
Persons can deduct TDS at the time of payment or when it gets credited to the payee’s account, whichever is earlier. If any interest amount gets credited to a different account, such as a suspense account or interest payable account, the TDS deduction will be applicable to that as well.
Find the tabular representation mentioned below to get a better idea regarding 194A TDS rates:
|Payment By||TDS Rate||Threshold Limit|
|Banks||20% (in case PAN is not furnished)||Rs. 10,000|
|Other than banking institutions||10% (in case PAN is furnished)||Rs. 5,000|
|Other than banking institutions||20% (in case PAN is not furnished)||Rs. 5,000|
|Banks||10% (in case PAN is furnished)||Rs. 10,000|
Now that you are aware of the TDS rates, you should also know about the different interest earnings on which TDS deduction is not applicable under 194A. Let’s take a look at them.
Also read: https://navi.com/blog/income-tax-slabs/
In order to make the most of tax deductions available under Section 194A, taxpayers need to be aware of the time limit of depositing TDS. Find the information given below:
Now that you have a decent idea regarding the purpose of Section 194A and how you can benefit from it, you can streamline the entire process of claiming tax benefits. Make sure to go through the provisions under Section 194A for TDS deduction before filing your ITR to complete the procedure with ease.
If there is a scenario where the recipient presents a declaration to the payer under Section 197A, then there is no TDS deduction. However, there will be certain conditions, such as recipients having to be an individual (not a firm), and tax on the total income for the last year should be NIL, etc.
No, TDS provisions are not applicable in case the interest is paid to financial institutions against the loan taken. Therefore, in such cases, TDS will not be deducted on the interest that has been paid to a bank.
No, the rules and regulations of Section 194A of the Income Tax, 1961 do not apply to the interest paid to the UTI or United Trust of India. Therefore, in this case, no tax will be deducted under this section.
If a person fails to pay the whole/a part of the tax or delays in making the payment of TDS despite being liable to deduct TDS, there will be certain consequences. The person would be liable to pay 1% interest for delay in deduction and 1.5% interest for delay in payment after deduction.
Note that Section 194A TDS section does not apply to interest paid to partners of a partnership firm. Hence, no such deductions will be applicable on interest that a partnership firm pays its partners.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
What is Form 26QB for TDS? How to Download and Submit it?While purchasing a property, buyers are liable to pay various taxes. The Finance Act, 2013 made TDS... Read More »
PF Withdrawal Rules 2023 – Rules, Documents Required and TypesEPF/PF Withdrawal Employees’ Provident Fund (abbreviated as EPF) is a popular retirement sav... Read More »
Stamp Duty and Property Registration Charges in Delhi 2023It is compulsory for property buyers in the Capital to pay stamp duty in Delhi during property regi... Read More »
Income Tax Return – Documents, Forms and How to File ITR Online AY 2023-24In India, it is mandatory for all taxpayers who earn more than the basic tax exemption limit to fil... Read More »
What is Section 80CCD – Deductions for National Pension Scheme and Atal Pension YojanaThe Income Tax Act provides a number of deductions and tax benefits to taxpayers, so they can strat... Read More »
Tax on Dividend Income: Sources, Tax Rate and TDS on dividend incomeWhat are Dividends? Companies may raise funds for running their operations by selling equity. Th... Read More »
Section 112A of Income Tax Act: Taxation on Long-Term Capital GainsWhat is Section 112A? Section 112A of the Income Tax Act was announced in Budget 2018 to replace... Read More »
Section 206AB of Income Tax Act: Eligibility And TDS RateSection 206AB was introduced in the Finance Bill 2021 as a new provision pertaining to higher deduc... Read More »
What is a Credit Note in GST – Example, Format and StepsA GST Credit Note is mandatory for any GST-registered supplier of goods or services. As a supplier,... Read More »
Exemptions and Deductions Under Section 10 of Income Tax ActWhat Is Section 10 of the Income Tax Act? Section 10 of the Income Tax Act, 1961 provides tax-sa... Read More »
Section 57 of the Income-tax Act – Income from Other SourcesIt is quite likely that many entities - individuals as well as businesses - have multiple sources o... Read More »