What is Section 194A of Income Tax Act?
Section 194A of Income Tax Act is applicable on payment of interest on securities to a resident.
It requires deduction of TDS on interest payments other than interest on securities made to resident individuals or entities.
Current Threshold Limits
| Payer | Current Threshold | Current Threshold (when payee is senior citizen) |
| 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) | Rs. 40,000/- | Rs. 50,000/- |
| A co-operative society engaged in carrying on the business of banking | Rs. 40,000/- | Rs. 50,000/- |
| On any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf | Rs. 40,000/- | Rs. 50,000/- |
| Any other case | Rs. 5,000/- | Rs. 5,000/- |
| A cooperative society referred to in clause (v) and clause (viia) of sub-section (3) of section 194A | Rs. 40,000/- | Rs. 50,000/- |
Proposed Threshold Limits
| Payer | Proposed Threshold | Proposed Threshold (when payee is senior citizen) |
| 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) | Rs. 50,000/- | Rs. 1,00,000/- |
| A co-operative society engaged in carrying on the business of banking | Rs. 50,000/- | Rs. 1,00,000/- |
| On any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf | Rs. 50,000/- | Rs. 1,00,000/- |
| Any other case | Rs. 10,000/- | Rs. 10,000/- |
| A cooperative society referred to in clause (v) and clause (viia) of sub-section (3) of section 194A | Rs. 50,000/- | Rs. 1,00,000/- |
Effective Date
These amendments will take effect from the 1st day of April 2025.
Time of Deduction
The deduction of tax must be made at the time of crediting such interest to the payee or at the time of its payment in cash or by any other mode, whichever is earlier.
Rate of TDS u/s 194A
TDS is to be deducted at 10% on the interest amount.
Note: If the payee does not provide a PAN or provided invalid PAN, the TDS rate will increases to 20%.
Who is Liable to deduct TDS?
All persons such as a Partnership, a Company, an Association of Person (AOP), or a Body of Individuals (BOI) other than an individual and HUF subject to certain conditions.
An individuals or a HUF that their sales/ gross receipts/ turnover from business or profession exceeds Rs. 1 crore (in case of business) and Rs. 50 Lakhs in case of services.
Such as – Banks, Co-operative Banks, Post Offices, Companies & Other Entities etc.
Exemptions from TDS u/s 194A
Interest paid to banks for interest on savings, partnership firm to its partners, LIC, UTI, insurance companies or other financial institutions is exempted from TDS but taxable as income.
Due Date To Deposit TDS
- April to Feb – 7th of the following month.
- March – 30th of April
Lower TDS Deduction and Exemption
Form 15G/15H (Section 197A)
- If a resident individual (other than a company or firm) submits Form 15G (below 60 years) / Form 15H (above 60 years), no TDS is deducted if total income is below the taxable limit.
Lower/Nil TDS Certificate (Section 197)
- Taxpayers can apply for a lower or nil TDS certificate if their TDS liability is higher than their actual tax liability.
- Form 13 must be submitted to the Assessing Officer (AO) for approval.
- If granted, TDS is deducted at a lower rate or not at all for the financial year.
FAQs
Interest on FDs, recurring deposits (RDs)
Interest on loans from NBFCs
Interest paid by co-operative societies (unless exempt)
Yes, by submitting Form 15G/15H (if eligible) to the deductor.
No, interest paid to NRIs is covered u/s 195, not 194A.