Section 194A of Income Tax: What Is It, TDS Deduction And Deduction Rate
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!
What Does Section 194A Deal with?
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.
Who Are Required To Deduct Section 194A TDS?
Under Section 194A, TDS or tax deducted at source on interest other than interest on securities are applicable to the following persons:
- HUFs or individuals who have to get their accounts audited under Section 44AB
- Any financial institution or banking company
- A cooperative society that is a part of the banking business
- Post office (on deposits under any scheme backed by the Central Government)
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.
When Should Section 194A TDS be deducted?
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.
What Is the Rate of TDS Deduction?
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.
- Interest on income tax refund
- Interest that a person pays to any bank, LIC or other insurance companies
- Interest earned on a savings account
- Interest paid by any member of a cooperative society (however, in case the annual turnover of a cooperative society exceeds Rs. 50 crore, TDS deduction is mandatory)
Also read: https://navi.com/blog/income-tax-slabs/
What Is the Time Limit for Depositing TDS?
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:
- Tax that has been deducted from April to February should be deposited either on the 7th of next month or before that date.
- Tax that has been deducted in March needs to be deposited either on 30th April or before that.
Final Word
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.
Frequently Asked Questions
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.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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