Section 194A requires any person (other than some individuals/HUFs) to deduct tax at source (TDS) on interest payments other than interest on securities. This includes interest from fixed deposits, recurring deposits, unsecured loans, NBFCs, and similar payments to residents.
Who Must Deduct TDS?
- Banks, companies, firms, NBFCs, partnerships, etc. payers must deduct TDS.
- Individual/HUF payers must deduct TDS only if their business turnover/gross receipts exceed ₹1 cr (business) or ₹50 lakhs (profession) in the previous year.
When is TDS Deducted?
TDS must be deducted at the earlier of:
- When the interest is credited (even to a suspense/provisional account)
- Or when it is actually paid (in cash, cheque, etc.)
TDS Rates
- 10% if the recipient provides PAN.
- 20% if PAN is not furnished.
No surcharge or cess applies on these TDS amounts.
Threshold Limits
| Payer Type | General | Senior Citizen |
|---|---|---|
| Banks/Post Offices/Co-op banks | ₹10,000 | ₹1,00,000 |
| Other payers | ₹10,000 | — |
- If interest in a FY exceeds these thresholds, TDS must be deducted.
(Note: previous thresholds were ₹40,000/₹50,000, but effective FY 2025‑26, they align to ₹10k general + ₹1 L for seniors.)
Exceptions & Exemptions
No TDS is required on interest:
- From savings bank accounts
- Paid to partners by partnership firms
- Paid by banks/LIC/UTI/insurance companies/cooperative societies under ₹50 crore turnover
- On tax refunds or specific government schemes
How to Avoid TDS
- Submit Form 15G (below 60) or 15H (60 & above) declaring taxable income is below the exemption limit → no TDS.
- Apply for a lower-rate/NIL TDS certificate using Form 13 from the Assessing Officer.
Deposit Due Dates & Compliance
- TDS deposit: by 7th of next month (April–Feb); by 30th April for March collection.
- TDS return filing and issuance of Form 16A certificate to the interest receiver is mandatory.
Summary
Section 194A is about ensuring tax collection at source on non-securities interest income. It sets out:
- Who must deduct it,
- When and how much,
- Preventive thresholds & exceptions,
- Ways to legally lower or avoid TDS.
