Section 194A | TDS on Interest (Other Than Interest on Securities)

CA.R.S.KALRA | Last updated: 09 January 2021

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Quick Summary

Section 194A of the Income Tax Act outlines the rules for Tax Deducted at Source (TDS) on interest payments, excluding interest on securities. It specifies that individuals or Hindu Undivided Families (HUFs) with significant business turnover (over ₹1 crore) or professional receipts (over ₹50 lakh) in the preceding financial year are responsible for deducting TDS. The deduction is made at the time of crediting the interest to the payee's account or making the payment, whichever occurs first. There are specific threshold limits below which TDS is not required, with higher limits for senior citizens.

194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment t

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FAQ :

Generally, any person, other than an individual or HUF, responsible for paying interest (not on securities) to a resident must deduct TDS. However, individuals or HUFs are also liable if their business turnover exceeds ₹1 crore or professional receipts exceed ₹50 lakh in the preceding financial year.

TDS must be deducted at the time of crediting the interest to the payee's account or at the time of payment, whichever is earlier.

For most payers, TDS is not required if the interest paid or credited does not exceed ₹5,000 annually. For banking companies, co-operative banks, or post offices paying interest on time deposits, the limit is ₹40,000 (₹50,000 for senior citizens). For co-operative societies with a turnover exceeding ₹50 crore, the limit is also ₹40,000 (₹50,000 for senior citizens).

Yes, TDS is not applicable on interest paid to banking companies, co-operative banks, LIC, UTI, insurance companies, or certain notified institutions. It's also not applicable for interest paid by a firm to its partner, or by a co-operative society (not a bank) to its member, subject to certain conditions.

The basic TDS rate is 10%. However, from 14th May 2020 to 31st March 2021, it was 7.5%. If the recipient does not provide their PAN, tax is deducted at 20%. No surcharge is added, but Health & Education Cess is applicable.