Budget 2025: Section 194A TDS Thresholds Revised Effective April 2025

Section 194A of the Income-tax Act governs the deduction of tax at source (TDS) on interest income other than interest on securities. Sub-section (1) mandates TDS by non-individuals or Hindu undivided families paying such interest. Sub-section (3) provides exemptions for payments below specific thresholds, which are higher for senior citizens. Amendments proposed in the Finance Bill, 2025, revise these thresholds, effective April 1, 2025. Key changes include raising the general threshold for TDS deduction from ₹40,000 to ₹50,000 and increasing the limit for senior citizens from ₹50,000 to ₹1,00,000 for banking companies, cooperative societies engaged in banking, and post office deposit schemes. For other cases, the TDS threshold rises from ₹5,000 to ₹10,000. These updates aim to align tax provisions with evolving financial thresholds and provide relief to senior citizens by reducing the burden of TDS deductions on their interest income.

Budget 2025: Section 194A – Interest other than interest on securities

Sub-section (1) of section 194A of the Act requires that any person, not being an individual or a Hindu undivided family, responsible for paying to a resident any interest income other than interest income on securities, shall deduct income-tax thereon at the rates in force.

2. Sub-section (3) of section 194A of the Act states that tax may not be required to be deducted when payment of interest income is by a payer of a specific nature and does not exceed a certain specified amount. These thresholds are higher in the case of a senior citizen being the payee, as given in the third proviso to clause (i) of sub-section (3). As per proviso to sub-section (3) of section 194A of the Act, a co-operative society as referred to in clause (v) and clause (viia) of sub-section (3) shall be liable to deduct income-tax at source when the amount of interest income during the financial year is more than Rs. 50,000/- in case of payee being a senior citizen and Rs. 40,000/- in any other case.

3. It is proposed to increase the threshold for requirement to deduct tax at source in section 194A as below –

4. These amendments will take effect from the 1st day of April 2025.

[Clause 53]

Extract of Relevant Clauses of Finance Bill, 2025

Clause 53 of the Bill seeks to amend section 194A of the Income-tax Act relating to interest other than “Interest on securities”.

Sub-section (1) of said section provides deduction of tax on income other than income by way of interest on securities.

Clause (i) of sub-section (3) of said section provides that tax is not required to be deducted under sub-section (1) of said section if the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed forty thousand rupees under given circumstances. Third proviso to sub-section (3) states that in case of senior citizens being the payee, forty thousand rupees in sub-section (3) of said section may be read as fifty thousand rupees.

Proviso to sub-section (3) of section 194A of the Act states that a co-operative society as referred to in the section shall be liable to deduct income-tax in this section in certain cases.

It is proposed to amend clause (i) of sub-section (3) of the said section so as to provide that the aggregate of the amounts of such income does not exceed fifty thousand rupees in the case of the payer being a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution, referred to in section 51 of that Act) or a co-operative society engaged in carrying on the business of banking or on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf, and does not exceed ten thousand rupees instead of five thousand rupees in any other case.

It is further proposed to amend the third proviso to clause (i) of sub-section (3) of the said section of the Act so as to provide that the threshold of amount of interest, or aggregate of the amounts of interest, for requirement of deduction of tax at source under this section to exceed one lakh rupees instead of fifty thousand rupees.

It is also proposed to amend clause (b) of proviso occurring after clause (xi) to sub­section (3) to the said section of the Act so as to provide that the threshold of amount of interest, or aggregate of the amounts of interest, for requirement of deduction of tax at source under this section to exceed one lakh rupees in case of payee being a senior citizen and to exceed fifty thousand rupees in any other case.

These amendments will take effect from 1st April, 2025.

Extract of Relevant Amendment Proposed by Finance Bill, 2025

53. Amendment of section 194A.

In section 194A of the Income-tax Act, in sub-section (3),––  section 194A.

(a) in clause (i), ––

(i) for the words, “forty thousand rupees”, wherever they occur, the words “fifty thousand rupees” shall be substituted;

(ii) in sub-clause (d), for the words “five thousand rupees”, the words “ten thousand rupees” shall be substituted;

(iii) in the third proviso, ––

(A) for the words “forty thousand rupees”, the words “fifty thousand rupees” shall be substituted;

(B) for the words “fifty thousand rupees”, the words “one lakh rupees” shall be substituted;

(b) in the proviso occurring after clause (xi), in clause (b),––

(i) for the words, “fifty thousand rupees”, the words “one lakh rupees” shall be substituted;

(ii) for the words “forty thousand rupees”, the words “fifty thousand rupees” shall be substituted.