Section 194A of the Income Tax Act deals with the interest paid on secured and unsecured credit. However, this section does not apply to interest paid on securities. According to the Section 194A, payment is made in the form of:
Interests on recurring deposits
Interest income earned on fixed deposits
Interest charged on advances and loans
Remember that Section 194A applies only to residents and not non-resident Indians. Hence, to cover any payment paid to an NRI, Section 195 becomes applicable.
Here are the fundamental provisions of 194A:
Interest that you pay to owners of a partnership firm does not attract TDS deductions
Entities, except HUFs and individuals, making interest payments to residents need to deduct TDS
If HUFs or individuals get their accounts audited based on the clauses of 44AB, they need to deduct TDS from their interest payout
HUFs or individuals have to deduct TDS if, in the last year, the receipts or turnover exceeds ₹1 Crore (business) or ₹50 Lakhs (profession)
Between 14th May 2020 and 31st March 2021, the Section 194A TDS rate was reduced to 7.5% for all interests paid as a COVID-19 relief measure. At present, as per the provisions of Section 194A, a payer must deduct TDS as per the following rates:
10% if the payee has furnished PAN
20% if the payee has not furnished PAN
Deduction of TDS on interest on loans, deposits, or other interest specified in Section 194A is applicable only if the interest amount exceeds the limit. Here are the limits:
₹50,000 for interest on time deposits if the receiver is a senior citizen
₹40,000 for interest on time deposits if the receiver is a non-senior citizen
₹5,000 for interest on debenture issued by a company
₹10,000 for interest on specified central or state Government security
According to Section 194A, TDS is deducted in the following situations:
When the interest amount exceeds the limit specified in the section
When the payee is an Indian resident
When the payee receives their income in their bank account
When tax is paid through the form of cash, draft, cheque, and other modes
Entities that deduct TDS on earnings must deposit it on or before the due date. They have to deduct the TDS even if the earnings have not been credited to the customer's bank account.
Here is the timeline to deposit TDS deducted under Section 194A of the Income Tax Act:
For tax deducted at source during April to February, deposits are to be made on or before the 7th of the next month
For tax deducted at source during March, deposits are to be made on or before 30th April
Here is an example that can help you understand the timeline clarity better. Suppose tax is deducted on 10th April and it has to be deposited on or before 7th May. If the tax is deducted on 7th March, it must be deposited before 30th April.
Declaring your earnings by submitting Forms 15G/15H according to Section 194A can avoid TDS deductions. However, to avoid TDS deductions, certain criteria have to be met that include the following:
The declarant must be an individual and not a company
The previous year’s tax on the total income has to be zero
The total income falls below the exemption limit
The declaration is given to the bank
In another scenario, you can submit Form 13 to the Assessing Officer (AO) for a TDS certificate. This certificate requires you to pay lower taxes, as per Section 194A. However, ensure you apply for this certificate before the deduction of TDS.
Another crucial factor is that you can apply for a certificate with a PAN card. It is impossible to get a certificate without furnishing your PAN details. This way, obtaining the required information about Section 194A can help streamline the process for you to claim your tax benefits quickly.
Get more details related to various sections of the Income Tax Act on Bajaj Markets. Understand the terms and conditions and plan your taxes correctly.
You must log in to the official Income Tax website and complete the process. Then, choose the type of payment and select the TDS option. The steps going forward will be clearly outlined.
Yes, after you pay TDS per Section 194A, you get a TDS certificate.
No, this section does not apply to NRIs.
TDS on interest under Section 194A applies when the interest exceeds specified limits:
₹50,000 for senior citizens' time deposits
₹40,000 for non-senior citizens' time deposits
₹5,000 for debentures issued by a company
₹10,000 for specified government securities
Under Section 194A, the payer will deduct TDS at 10% if the payee has submitted PAN details. If the details have not been furnished, it will be deducted at 20%. Depending on the type of asset through which interest is earned, the threshold ranges from ₹5,000 to ₹50,000.
Section 194A applies exclusively to residents; hence, it does not govern interest payments to non-residents. For payments to non-residents, TDS falls under Section 195, where tax deduction follows different provisions.
Section 194A(3) exempts co-operative societies from TDS obligations when paying or crediting interest to their members or any other co-operative society.