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income tax act section 194a

Section 194A – TDS on Interest other than Interest on Securities

U.C Date : 07 June 2016

Section 194A of income tax act provides for deduction of tds on payment made regarding interest.

 

Payment By Rate of TDS Threshold Limit
Other than banks 10% (If PAN is furnished) Rs 5,000
Other than banks 20% (If PAN is not furnished) Rs 5,000
Banks 10% (If PAN is furnished) Rs 10,000
Banks 20% (If PAN is not furnished) Rs 10,000

If such interest is payable on any security (eg. bonds, mutual funds etc) then such interest is covered under section 194 of income tax act.

Persons liable to deduct TDS

Any person (other than individual or HUF who is not liable to audit under section 44AB in the preceding year) who is responsible for paying to a resident any interest other than interest on securities is liable to deduct TDS under this section.

Time of deduction

TDS  is to be deducted at the time of payment or credit to the account of the payee, whichever is earlier. Where any amount of interest is credited to any account whether called Interest payable account or suspense account or any other name, provisions of this section shall apply and tds is to be deducted.

Rate of deduction

TDS is to be deducted at the rate of 10%. If the recipient of income doesn’t furnish his PAN to deductor then TDS is to be deducted @ 20%.

TDS is not required to be deducted in following cases –

  1. Amount of such interest paid or credited, or is likely to be paid or credited in a financial year does not exceed
    1. 10,000 where the payer is a banking company, any bank, banking institution, co-operative society engaged in the business of banking, post office (on deposit under scheme framed and notified by Central Government). Such amount is calculated branch wise if such institution adopted core banking solutions.
    2. 5,000 in any other case.
  2. Interest credited or paid by a firm to a partner of the firm.
  3. Interest is paid or credited to any banking company, co-operative society engaged in banking business, public financial institutions, LIC, Unit Trust of India (UTI), a company or co-operative society carrying on the business of insurance or any institution Central Government notifies.
  4. Interest is paid by paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society.
  5. Interest is paid or credited in respect of deposits under scheme framed by Central Government and notified in official Gazette.
  6. To such income credited or paid in respect of deposits (other than time deposits) with a banking company or co-operative society carrying on business of banking. In other words, saving’s account interest is not liable for tds deduction.
  7. Interest is paid by Central Government under any provisions of the income tax act or wealth tax act.
  8. Income credited or paid in respect of deposits with primary agricultural credit society or co-operative land mortgage bank or co-operative land development bank.
  9. Interest paid on compensation awarded by the Motor Accidents Claims Tribunal where the amount of such income or the aggregate of the amounts of such income credited or paid during the financial year doesnot exceed Rs. 50,000. Such interest if credited and not paid then whole amount of such interest credited without any condition.
  10. Interest is in relation to zero coupon bonds.
  11. Interest referred to in section 10(23FC).
  12. Discounting charges on export bill discounted is not treated as interest and thus not liable for tax deduction under section 194A.

If interest is paid to the creditor due to late payment of purchases then such interest is not liable for TDS. Read in detail – Interest on delayed payment of purchase bills – Whether TDS deductible

The recipient can stop deduction of TDS on interest income by filling Form No. 15G/15H to the payer.

Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.

Also Read:

Bare Act for Sec 194A

Bare Act for Sec 194A

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income [by way of interest on securities], shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

[Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.]

Provided further that the amount referred to in the first proviso shall be computed with
reference to the income credited or paid by the banking company or the co-operative society
or the public company, as the case may be, where such banking company or the co-operative
society or the public company has adopted core banking solutions

[Explanation.—For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

(2) [Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]

(3) The provisions of sub-section (1) shall not apply—

[(i)  where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, [does not exceed—

(a)  ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);

(b)  ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;

(c)  ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified17 by it in this behalf; and

(d)  five thousand rupees in any other case]:]

[Provided that in respect of the income credited or paid in respect of—

(a)  time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or

(b)  time deposits with a co-operative society engaged in carrying on the business of banking;

(c)  deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes [and which is eligible for deduction under clause (viii) of sub-section (1) of section 36] ,

the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be;]

Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions.

(ii)

(iii)  to such income credited or paid to—

(a)  any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or

(b)  any financial corporation established by or under a Central, State or Provincial Act, or

(c)  the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or

(d)  the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or

(e)  any company or co-operative society carrying on the business of insurance, or

(f)  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;

[(iv)  to such income credited or paid by a firm to a partner of the firm;]

(v)  to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society or to any other co-operative society

Explanation.—For the purposes of this clause, “co-operative bank” shall have the same as
meaning assigned to it in Part V of the Banking Regulation Act, 1949

[(vi)  to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;

[(vii)  to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);

(viia)  to such income credited or paid in respect of,—

(a)  deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;

(b)  deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;

(viii)  to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);

(ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal

(ixa) to such income paid by way of interest on the compensation amount awarded by the
Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees

(x)  to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company [or scheduled bank] in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company [or scheduled bank].

(xi) to any income by way of interest referred to in clause (23FC) of section 10.

Explanation 1.—For the purposes of clauses (i), (vii) and (viia), “time deposits” means deposits (including recurring deposits) repayable on the expiry of fixed periods.

(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

68 comments

  1. Hi,

    I am having a query regarding TDS on saving bank account’s interest.
    What if i have deposited 7 lakh in my saving bank account and i get around 30000 inr as an interest on it for a year. Will bank deduct TDS on it automatically ?
    I have got some rumors that from this financial year, banks will deduct TDS on saving account’s interest.
    Is that true ?
    Please tell if you have any updated info on this topic.

  2. Hi,

    I am having a query regarding TDS on saving bank account’s interest.
    What if i have deposited 10 lakh in my saving bank account and i will get around 40000 inr as an interest on it for a year. Will bank deduct TDS on it automatically ?
    I have got some rumors that from this financial year, banks will deduct TDS on saving account’s interest.
    Is that true ?
    Please tell if you have any updated info on this topic.

  3. Tushar Surana

    Hi,

    In Case if Interest is paid by Asset Management Company to a Investor for Delay in Redemption of its Investment Amount as per the SEBI Guidelines whether the Company is liable to deduct TDS on that Interest Amount under section 194 A

    • Prateek Agarwal

      This payment is specifically not excluded from TDS deduction, so i think TDS should be deducted from this amount if exceeding the threshold limits.

  4. If I come under 20% tax bracket and I have earned 18500 as interest, on which 1850 TDS is deducted @ 10% rate on entire amount. While filling returns I should show 8500 as amount earned (18500 -10000 limit =8500). On which tax should be 8500 x 20% (my tax bracket)=1700. Or it will be 20% on total amount? Please reply

    • Rohit Pithisaria

      You have to report total interest earned (without deducting TDS i.e. 18500). Rs 10,000 is only a threshold limit not an exemption of interest.

  5. Sanjip kumar Pradhan

    I changed my company on Oct 2014 before completing 5 yrs. But only on April 2016 I initiated for PF transfer to my current company. Now I got a form 16 from my previous company for yr 2015-16 where there is reduction of tax on the interest accumulated on my Pf account. Is it valid , if not can I file for refund during my return file?

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