TDS on Interest Other Than Securities – Section 194A

Section 194A of the Income Tax Act mandates the deduction of TDS on interest other than securities when such income is paid to a resident. This includes interest from fixed deposits, recurring deposits, loans, and other financial arrangements. It is distinct from TDS on securities under Section 193.

Applicability of Section 194A

This section applies to individuals, HUFs, firms, companies, co-operative societies, and others making interest payments to residents exceeding the prescribed threshold. For comprehensive understanding, refer to the key definitions under Income Tax.

Exclusions from Section 194A

• Interest on securities – covered under Section 193
• Interest paid to banks, LIC, UTI, and other notified institutions
• Interest to partners by a firm
• Interest credited to non-residents – governed by Section 195

TDS Rate under Section 194A

With PAN: 10%
Without PAN: 20% (as per Section 206AA)

Threshold Limits

• ₹5,000 – for deductors other than banks and post offices
• ₹40,000 – for banks and post offices (₹50,000 for senior citizens)

Submission of Form 15G/15H

To avoid TDS deduction, eligible individuals may submit Form 15G or 15H if their income is below the taxable threshold.

Time of Deduction

TDS must be deducted at the time of credit or payment of interest, whichever is earlier. This aligns with general TDS rules applicable in India.

Due Date for TDS Payment

The deducted tax must be deposited with the government by the 7th of the following month.

Examples

• Example 1: A bank pays ₹45,000 as interest to a resident aged 45. Since the threshold is ₹40,000, TDS @10% applies on the excess ₹5,000.
• Example 2: A senior citizen earns ₹48,000 as bank interest and submits Form 15H. No TDS will be deducted.
• Example 3: Interest of ₹6,000 paid by a company to an individual without PAN. TDS @20% applies due to non-furnishing of PAN.

Consequences of Non-Deduction

• Interest under Section 201(1A) for late deposit
• Penalty under Section 271C for non-deduction
• Disallowance of expense under Section 40(a)(ia)

Helpful Resources

• Complete Guide to TDS in India
• TDS on Interest on Securities – Section 193
• TDS on Lottery Winnings – Section 194B
• Income Tax Calculator
• Section 80TTB – Deduction for Senior Citizens