Section 194A: Understanding TDS on Interest Payments

Section 194A deals with the interest paid on secured and unsecured credit. However, this section does not apply to interest paid on securities. According to 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 this section applies only to residents and not non-resident Indians. Hence, to cover any payment paid to an NRI, Section 195 becomes applicable.

Who Should Deduct TDS u/s 194A

Here are the fundamental provisions of 194A:

Entities, except HUFs and individuals, making interest payments to residents need to deduct TDS
HUFs or individuals have to deduct TDS if, in the last year, the receipts or turnover exceeds ₹1 Crore (business) or ₹50 Lakhs (profession)

TDS Rate, Deduction Schedule, and Limit

Between May 14, 2020, and March 31, 2021, the Section 194A TDS rate was reduced to 7.5% for all interests paid as a COVID-19 relief measure. Here are the details of the 194A TDS rate applicable currently:

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 Section 194A TDS 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

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

Due Date for Depositing TDS

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:

Type of Deduction	Due Date
For TDS filing from April to February	7th day of the next month
For TDS filing during March	April 30

TDS Deduction at Nil or Lower Rates

Declaring your earnings by submitting Forms 15G/15H according to Section. 194A can minimise 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

How can one deposit TDS as per 194A?

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.

Will I receive any proof after I pay TDS?

Yes, after you pay TDS per Section 194A, you get a TDS certificate.

Does Section 194A apply to Non-Resident Indians?

No, this section does not apply to NRIs.

What is the limit of Section 194 TDS?

TDS on interest under Section 194A applies when the interest exceeds specified limits. For instance, the Section 194A limit for TDS filing for senior citizens' time deposits is ₹50,000 and ₹40,000 for non-senior citizens.

What is the 194A TDS rate and threshold limit?

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 goes up to ₹50,000.

What is Subsection 3 of 194A?

Section 194A(3) exempts co-operative societies from TDS obligations when paying or crediting interest to their members or any other co-operative society.

What is the difference between sections 193 and 194?

While Section 193 applies to interest payable on securities, Section 194A of the Income Tax Act deals with the interest on instruments other than securities.