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Writer's pictureCa Sunil Sakral

What is TDS on Interest Sec 194A ?

Section 194A of the Income Tax Act deals with the provisions relating to deduction of TDS on interest (other than interest on securities). Interest like interest paid on an unsecured loan, interest paid by banks on fixed deposits, interest paid on loans and advances, etc. are covered under the provisions of section 194A.


Essential features of section 194A are summarized hereunder :

1. Any person, other than individual or HUF, who is paying interest (other than interest on securities) to a resident is required to deduct TDS.


2.If the individual or HUF are liable to get their accounts audited as per section 44AB [clause (a) or (b)], then, such individual or HUF would be required to deduct TDS on payment of interest (other than interest on securities) to a resident as per provisions of section 194A.


3.Section 194A is applicable only in case of payment of interest to a resident i.e., the provisions of section 194A doesn’t apply to the payment of interest to a non-resident. The same is covered within the purview of section 195.


Time to Deduction: The Deductor liable to deduct TDS as per provisions of section 194A is required to deduct TDS within earlier of the following dates –


-At the time of credit of income to the payee’s account; or

-At the time of payment in cash, cheque, draft or any other mode.


Rate of TDS on interest other than interest on securities :

If the provisions of section 194A of the Income Tax Act gets attracted, the Deductor is liable to deduct TDS on interest other than interest on securities @ Old 10% and New 7.50% ( for the financial year 2019-20 effective from may 2020)


However, if the Permanent Account Number is not furnished, in that case, the Deductor would be liable to deduct TDS @20% i.e., maximum marginal rate.


Threshold Exemption limit under Section 194A

Bank: An aggregate amount of interest doesn’t exceed INR 40,000 [INR 50,000 in case of a senior citizen].

Co-operative Society: An aggregate amount of interest doesn’t exceed INR 40,000 [INR 50,000 in case of a senior citizen.

Post Office: An aggregate amount of interest doesn’t exceed INR 40,000 [INR 50,000 in case of a senior citizen].

In any other Case: An aggregate amount of interest doesn’t exceed INR 5,000.


Interest Exempted under section 194A

Some of the important lists of interest which are exempted under section 194A are :

# Interest paid to any bank, financial corporation, Life Insurance Corporation Unit Trust of

India, any company or a co-operative society engaged in the insurance business.

#Interest paid by a partnership firm to the partners.

#Interest paid by co-operative society to its members.


Regards

Compiled by CA Sunil Sakral


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