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TDS Section 194A - TDS on interest other than interest on securities

CA Himanshu Gandotra 
on 22 July 2019

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Update:The rates of TDS on non-salaried specified payments made to residents has been reduced by 25% for the period from 14th  May 2020  to 31st March 2021 by FM in the Economic Relief Package. 
TDS Section 194A - TDS on interest other than interest on securities

1. What is the applicability of TDS Section 194A?

TDS Section 194A is applicable to interest other than interest on securities credited or paid by:

• Any person other than an individual or HUF to any resident
• Individual or HUF who fall under *Section 44AB(a) or 44AB(b) to any resident

*Section 44AB(a) includes those Businesses whose Total turnover or gross receipts for a financial year exceeds Rs. 1 crores

*Section 44AB(b) includes those Professionals whose Total Gross Receipts for a financial year exceeds Rs. 50 Lakhs.

2. When is TDS u/s 194A deducted?

When the specified person as defined above, pays interest to a resident person, other than INTEREST ON SECURITY, then the payer shall deduct TDS

 

- At specified rates
- At the time of credit or payment of interest whichever is earlier.
- The implication of credit u/s 194A:

The word CREDIT has very interesting implications in this section. Suppose Interest to be paid by Specified person is not actually paid by Payer but instead credited to SUSPENSE a/c or INTEREST PAYABLE a/c or any other a/c, then also TDS need to be deducted and deposited to Government.

3. What is the rate of TDS applicable u/s 194A?

The rate of TDS applicable under section 194A is as follows:

 

S.No.

Payer

Threshold Limit

Rate Applicable

1.

Banking Company to which Banking Regulation Act 1949 applies

10,000

10%

2.

Co-operative Banks

10,000

10%

3.

Post office on deposits made with it

10,000

10%

4.

Any Other person

5,000

5%

5.

Banks or Co-operative bank or Post Office paying Interest to any person being a Senior Citizen (aged >60 years)

40,000

10%

In the above cases 1-3 and 5, the If Interest amount shall be computed branch wise. For Example, if Branch 1 of a bank pays Rs. 9000 as interest on Fixed deposits to Mr. A and Branch 2 pays Rs. 6000 as Interest on FD to Mr. A, then in such a case though total interest received by Mr. A is Rs. 15000 that is exceeding Rs. 10000, but since neither of the branch is paying more than Rs. 10,000, None of the 2 branches will deduct TDS in this case.

 

4. TDS u/s 194A not to be deducted in the following cases

1. When the Receiver of Interest is:-

• Banking Company

• Any financial corporation established by or under a Central, State or Provincial Act, or

• Life Insurance Corporation of India

• Unit Trust of India

• Any company or co-operative society carrying on the business of insurance, or

• Such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;

2. Interest is paid or credited by the Partnership firm to its partners.

3. Interest paid by Co-operative society to its members or to any other co-operative society.

4. If the aggregate amount of interest paid or credited during the FY does not exceed Rs 5000.

5. The aggregate amount of interest paid or credited during the FY does not exceed Rs 40000(Rs 50000 for senior citizens) in the following cases:

-time deposits in a banking company/ cooperative society engaged in the banking business.

- deposits with post office under notified schemes

6. Interest paid in relation to zero-coupon bond by a infrastructure company/public sector company/ scheduled bank after 1.6.2005


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