Section 194A of Income Tax Act deals with TDS on Interest, other than interest on securities.
On which income section 194A is applicable?
It is applicable on interest other than interest on securities. It covers interest received from banks, post office, cooperative society.
It excludes interest on securities. Securities means shares, debentures of a company.
What is TDS rate under section 194A?
The TDS rate under section 194A is 10%.
The rate of tax is reduced to 7.5% applicable from 14.05.2020 to 31.03.2020 due to COVID-19
What is TDS limit under section 194A?
Rs. 5000 Limit
TDS is deductible if the interest amount exceeds Rs 5,000 during the financial year.
Rs. 40,000 Limit
However, in below cases if such interest is paid by the following entities, tax shall not be deducted at source unless the payment exceeds Rs 40,000.
- A banking company
- A cooperative society engaged in banking business
- only if the total sales/gross receipts/turnover of the co-operative society exceeds 50 crore rupee during the FY immediately preceding the FY in which interest is credited or paid (amendment by Finance Act 2020)
- Post office on any deposit under any scheme framed and notified by central gov.
For Example, if you earn interest on Fixed deposit for more than Rs. 40,000, then the bank will deduct TDS @10% on whole Interest amount.
Suppose, if you earn interest of Rs. 45000 from your fixed deposit with bank, the TDS deducted will be Rs. 4,500.
Rs. 50,000 limit
In case interest is received by senior citizen, then TDS limit to deduct TDS under section 194A is Rs. 50,000.
Whether section 194A provisions applicable on individual and HUF?
This section is applicable to all persons. But for Individual/HUF it is liable to deduct TDS ON INTEREST under section 194A only if their sales, gross receipt turnover exceeds one crore rupees in case of business or fifty lakh rupees in case of profession in the immediately preceding financial year [Section 44AB].
What is the time of deduction u/s 194A?
Time of crediting interest or Time of payment in cash or any other mode whichever is earlier
[The account to which the interest is credited may be any name eg- “suspense account” or “Interest payable account”]
What is the exemptions from TDS on Interest?
Exemptions has been granted from the deduction of tax at source ( TDS ON INTEREST 194A ) in respect of the following:
- Interest credited or pay by a firm to a partner of the firm
- Interest credited or paid by a cooperative society to its member or to any other co-operative society
- Interest on the compensation amount awarded by the motor accident claims tribunal where the aggregate of such interest income in financial year does not exceeds Rs 50,000;
- Income paid or payable at income coupon bonds issued by an infrastructure capital company or infrastructure capital fund or a public sector company or a scheduled bank;
- Interest paid to banking company or any cooperative society engaged in banking business
- Interest paid to financial corporation established under a central , state or provincial act;
- Interest paid to LIC,UTI, any company or cooperative society carrying on insurance business;
- Interest on deposits with a banking company other than time deposit;
- Income credited or paid in respect of deposits under any scheme framed by central government;
- Income paid or credited in respect of deposits with :-
- A primary agricultural credit society or a primary credit society or a cooperative land mortgage bank or a co-operative land development bank
- Deposits other than time deposits, with a cooperative society carrying on banking business, other than a co-operative society, referred above.
- Interest credited or paid by central government under income tax act, 1961 and wealth tax act, 1957,viz, interest on refunds.
Important points under section 194A
- Section 194A is applicable only to interest paid/credited to residents
- Senior citizen means a resident individual whose age is 61 or more during the relevant Previous Year
- The term “time deposit” includes recurring deposit
- If you believe that your income will not exceed the minimum income chargeable to tax, then you can submit 15CA/15CB to the bank and on such submission the bank will not deduct any TDS.
Hope you have got your answer for query related to TDS on Interest.