Section 194A focuses on the deduction of TDS on interest payments, excluding interest on securities. The primary objective is to ensure that individuals or entities making interest payments deduct tax at the specified rates before crediting the amount to the payee.
While Section 194A of the Income Tax Act, 1961, governs the deduction of Tax Deducted at Source (TDS) on interest payments, it’s crucial to note that this section exclusively applies to residents. In cases involving payments of interest to non-residents, a different provision comes into play – Section 195.
The TDS rate on interest in India for the FY 2023-24 is
- 10% when payee furnish PAN ( As on 14th may 2020 to 31st march 2021 the rate is 7.5% for interest earned because of COVID-19 relief measure)
- 20% if the payee does not furnish their
- From the deposits with banks/post office/co-operative society interest earned exceeding Rs.40,000. Rs.5,000 in other case (For e.g., interest from friends)
- From FY 2018-2019 Senior citizen exceeding interest earned Rs.50,000 from banks/post office/co-operative society
TDS under Section 194A is required to be deducted by any person who is responsible for making a payment of interest to a resident individual or HUF. This includes banks, financial institutions, companies, and individuals.
Banks and Financial Institutions:
Banks and financial institutions are among the key entities mandated to deduct TDS under Section 194A. This includes scheduled banks, cooperative banks, and non-banking financial companies (NBFCs).
Businesses and Corporates:
Any business or corporate entity making interest payments is obligated to deduct TDS under Section 194A. This can include interest on loans, advances, or any other form of interest-bearing payments.
Individuals and HUFs (Hindu Undivided Families):
Individuals and HUFs may also fall under the purview of Section 194A if their gross receipts or turnover in the previous financial year exceeds the specified limit. In such cases, they are required to deduct TDS on interest payments.
Government Departments:
Government departments, both at the central and state levels, are also obligated to deduct TDS on interest payments as per the provisions of Section 194A.
Other Entities and Associations:
Entities such as trusts, associations, and educational institutions, if they fall within the specified criteria, are also required to deduct TDS on interest payments.
TDS under Section 194A is required to be deducted at the time of crediting or paying the interest income to the payee.The TDS deducted under Section 194A is required to be deposited with the government within 7 days from the end of the month in which the TDS was deducted
TDS is an important tool for the government to collect taxes at the source. This helps to reduce tax evasion and ensures that the government receives its due taxes on time. Taxpayers should be aware of their TDS liability and ensure that TDS is deducted and deposited correctly
If you have any questions or need assistance with TDS compliance, you should consult with a tax Expert.
- Government of India Income Tax website: https://incometaxindia.gov.in/
- Income Tax helpline: 1800 103 0025
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