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

Introduction

Section 194A is a key tax regulation related to Tax Deducted at Source (TDS) on non-security interests. It ensures correct tax deduction from interest payments. Understanding Section 194A is important for residents. This article will discuss Section 194A, its application, rates, and TDS deposit deadlines.

What is Section 194A?

Section 194A is a provision under the Income Tax Act that mandates the deduction of TDS on interest payments other than interest on securities. This section applies exclusively to residents, and the provisions of Section 194A do not extend to non-residents. Payments made to non-residents are covered under a separate section, namely Section 195, which outlines the rules for TDS deduction in such cases.

Applicability of TDS under Section 194A

TDS under Section 194A is applicable when the amount of interest paid or credited, or likely to be paid or credited, in a financial year exceeds a certain threshold. The threshold differs based on the nature of the payer.

If the payer is a banking company, any bank, or a banking institution, a cooperative society engaged in banking business, or the post office (on deposits under schemes framed and notified by the Central Government), TDS needs to be deducted if the interest amount exceeds INR 40,000. For all other cases, the threshold for TDS deduction is INR 5,000.

Note that since 2018-19, no TDS is deducted on interest up to INR 50,000 by senior citizens. This relates to interest from bank deposits, post office deposits, and fixed or recurring deposit schemes.

TDS Deduction at a Nil or Lower Rate

There are scenarios where TDS under Section 194A may be deducted at a nil or lower rate. This can happen if the recipient submits a declaration in Form 15G/15H under Section 197A or an application in Form 13 under Section 197.

Form 15G/15H Declaration

If a recipient, who is not a company or firm, submits a declaration in Form 15G (15H for senior citizens) along with their Permanent Account Number (PAN), no tax will be deducted at source if the following conditions are satisfied:

  1. The recipient's total income in the previous year is nil.
  2. The total income does not exceed the exemption limit applicable for the assessment year (e.g., INR 2,50,000 for AY 2020-21).
  3. The declaration is submitted in duplicate Form 15G (15H for senior citizens).
  4.  In the Senior Citizens Saving Scheme, 2004 (SCSS), investors and their nominees can submit the declaration, including after the investor's death.
  5. On submission of the declaration to the bank, tax shall not be deducted on payment of interest (subject to the conditions mentioned above).

Application in Form 13

Under Section 197, recipients can use Form 13 to apply for a certificate allowing the payer to deduct tax at a lower rate or not at all, if certain conditions are met. Applications can be submitted anytime before the tax is deducted. The certificate, issued on plain paper, will be directly given to the income payer, with advice to the applicant. It can't be issued retroactively. The recipient can provide a copy of the certificate to the income payer for lower or no tax deduction at source.

Rate of TDS under Section 194A

TDS rate under Section 194A depends on whether or not the recipient has provided their PAN. If provided, the TDS rate is 10%. Due to COVID-19, the rate was lowered to 7.5% for interest credited from 14th May 2020 to 31st March 2021. Without PAN, the TDS rate is 20%. No additional charges like surcharge, education cess, or SHEC are added, so the tax is deducted at the basic rate.

Time Limit for Depositing TDS

The time limit for depositing TDS under Section 194A is as follows:

  • Tax deducted during the months of April to February should be deposited on or before the 7th of the following month.
  • Tax deducted in the month of March should be deposited on or before 30th April.

For example, if tax is deducted on 25th April, it should be deposited on or before 7th May. If tax is deducted on 15th March, it should be deposited on or before 30th April.

Conclusion

Section 194A plays a crucial role in regulating the deduction of TDS on interest other than interest on securities. As a resident taxpayer, it is essential to understand the provisions of this section, including the thresholds, rates, and time limits for depositing TDS. By complying with the regulations outlined in Section 194A, individuals and entities can ensure proper taxation and contribute to the overall financial governance of the country.

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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