Section 194A TDS Exemption for Individuals or HUF Below Taxable Slab

Exemption from TDS Deduction under Section 194A for Individuals or HUF Below Taxable Income Slab Rates

Introduction:

In the realm of taxation in India, Section 194A of the Income Tax Act, 1961, serves as a pivotal provision governing the deduction of Tax Deducted at Source. (TDS) on interest payments. However, Individuals whose annual income falls below the taxable threshold as per the income tax slab rates are eligible for exemptions from TDS deductions under this section. This exemption provides relief to individuals whose total income, including interest income, remains below the prescribed taxable limit, ensuring that they are not burdened with unnecessary tax deductions. This introduction delves into the intricacies of Section 194A and elucidates how individuals meeting specific income criteria can avail themselves of exemptions from TDS deductions, thereby facilitating a more equitable tax regime.

We will delve into the following topics to enhance comprehension

I. Concept of TDS

II. Over View of Section 194A of the Income Tax Act, 1961

III. Exemption Criteria under section 194A of the Income Tax Act, 1961

IV. Taxable Income Slab Rates for Individuals

V. Exemption for Individuals or HUF Below the Taxable Slab Rate from Section 194A of TDS under the Income Tax Act”

VI. Form 156/15H

VII. Conclusion

Concept of TDS

Tax Deducted at Source (TDS) is a mechanism introduced by tax authorities to collect tax at the source of income generation. The concept entails deducting a certain percentage of tax from payments made by a taxpayer to another party, such as salaries, interest, commission, rent, etc., at the time of making such payments. The deducted tax is then remitted to the government by the deductor on behalf of the payee.

TDS serves multiple purposes:

Ensuring Revenue Collection: TDS ensures a steady inflow of tax revenue to the government throughout the year by collecting tax at the time of transaction or payment.

Preventing Tax Evasion: By deducting tax at the source, TDS minimizes the scope for tax evasion or non-compliance. It ensures that tax liabilities are met by taxpayers at the time of income generation.

Ease of Compliance: TDS shifts the responsibility of tax deduction and remittance from the recipient of income to the payer. This simplifies the compliance process for taxpayers, as they do not have to worry about setting aside funds for tax payments separately.

Distribution of Tax Burden: TDS helps in distributing the tax burden across various sections of taxpayers. It ensures that taxes are collected from individuals or entities irrespective of their compliance behaviour.

Promoting Transparency: TDS promotes transparency in financial transactions by maintaining a record of tax deducted and ensuring proper documentation through TDS certificates and returns.

Overall, the concept of TDS plays a crucial role in the tax administration system by facilitating efficient tax collection, promoting compliance, and minimizing tax evasion, thereby contributing to the stability of the economy.

Overview of section 194A of the Income Tax Act,1961

Interest other than “Interest on securities”

194A (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10% (or 20% without PAN information).

Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.

Explanation. —For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Exemption Criteria under section 194A of the Income Tax Act,1961

Section 194A exemptions include the following:

The provisions of Section 194A (1) shall not apply—

(i) where the amount of such income or, as the case may be, 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—

(a) forty thousand rupees, where the payer is 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);

(b) forty thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;

(c) forty thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and

(d) five thousand rupees in any other case:

Provided that in respect of the income credited or paid in respect of—

(a) time deposits with 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); or

(b) time deposits with a co-operative society engaged in carrying on the business of banking;

(c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;

the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be:

Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions:

Provided also that in case of payee being a senior citizen, the provisions of sub-clause (a), sub-clause (b), and sub-clause (c) shall have effect as if for the words “forty thousand rupees”, the words “fifty thousand rupees” had been substituted.

(ii) To such income credited or paid to—

(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co­operative land mortgage bank), or

(b) any financial corporation established by or under a Central, State or Provincial Act, or

(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 or

(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or

(e) any company or co-operative society carrying on the business of insurance, or

(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;

(iii) to such income credited or paid by a firm to a partner of the firm;

(iv) to such income credited or paid by a co-operative society

(other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.

Explanation. – For the purposes of this clause, “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(v) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;

(vi) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with 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);

(via) to such income credited or paid in respect of, —

(a) deposits with a primary agricultural credit society or a primary credit society or a co­operative land mortgage bank or a co-operative land development bank;

(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;

(vii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);

(viii) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;

(viiia) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;

(ix) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or 10a [infrastructure debt fund or] a public sector company or scheduled bank in relation to a zero-coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank;

(x) to any income by way of interest referred to in clause (23FC) of section 10:

Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if—

(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.

Explanation 1. —For the purposes of clauses (i), (vi) and (via), “time deposits” means deposits (including recurring deposits) repayable on the expiry of fixed periods.

Explanation 2. —For the purposes of this sub-section, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.

(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

(5) The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.

Taxable Income Slab Rate for Individuals or HUF

In India, the concept of taxable slab rates for individuals refers to the progressive taxation system imposed by the government on the income earned by individuals in a financial year. The income tax rates vary depending on the income level, with higher rates applied to higher income brackets.

As of my last update, India has a slab-based income tax system with different tax rates applicable to different income ranges.

Here are the income tax slab rates for individuals below 60 years of age for the financial year 2023-24 (assessment year 2024-25):

Income Tax Slab Rates for Individuals (Below 60 years) – Old Tax Regime: Under the old tax regime, the following income tax slabs apply:

• Up to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5% of income over ₹2,50,000
• ₹5,00,001 to ₹10,00,000: ₹25,000 + 20% of income over ₹5,00,000
• ₹10,00,001 and above: ₹1,25,000 + 30% of income over ₹10,00,000
• Please note that a tax rebate of up to ₹12,500 is applicable if the total income does not exceed ₹5,00,000 (not applicable for NRIs).

Income Tax Slab Rates for Individuals (Below 60 years) – New Tax Regime under section 115BAC:

Under the new tax regime, the following income tax slabs apply:

• Up to ₹3,00,000: Nil
• ₹3,00,001 to ₹7,00,000: 5% of income over ₹3,00,000
• ₹7,00,001 and above: Tax payable when the total income exceeds ₹7,00,000
• Please note that a rebate of up to ₹25,000 is applicable if the total income does not exceed ₹7,00,000 (not applicable for NRIs).

Remember that surcharge and cess will be applicable over and above the tax rates.

Note: As per the Income-tax Act, 1961, the tax provisions differ based on the age of the individual. Let’s break it down for senior citizens (those aged 60 years or more but less than 80 years) and super senior citizens (those aged 80 years or more)

Income Tax Slab for Senior Citizens (Aged 60 to 80 years):

Under the old tax regime, senior citizens can enjoy unconditional claim of exemptions and deductions. The income tax slab rates for senior citizens for FY 2023-24 (AY 2024-25) are as follows:

• Up to ₹3,00,000: Nil
• ₹3,00,001 to ₹5,00,000: 5% of income over ₹3,00,000
• ₹5,00,001 to ₹10,00,000: ₹10,000 + 20% of income over ₹5,00,000
• Above ₹10,00,000: ₹1,10,000 + 30% of income over ₹10,00,000

Income Tax Slab for Super Senior Citizens (Aged 80 years or more):

Super senior citizens can choose between the old and new tax regimes, opting for whichever is more beneficial. Under the old tax regime, the income tax slab rates for super senior citizens for FY 2023-24 (AY 2024-25) are as follows:

• Up to ₹5,00,000: Nil
• ₹5,00,001 to ₹10,00,000: 20% of income over ₹5,00,000
• Above ₹10,00,000: ₹1,00,000 + 30% of income over ₹10,00,000

Remember that the calculated tax for senior and super senior citizens is increased by Health and Education Cess at 4% of the income tax. Additionally, surcharge rates apply based on total income:

• Total income > ₹50 Lakhs: 10%
• Total income > ₹1 crore: 15%
• Total income > ₹2 crore: 25%
• Total income > ₹5 crore: 37%

Exemption for Individuals or HUF below the Taxable Slab Rate from Section 194A of TDS under  the Income Tax Act: 

When an individual’s total income falls below the minimum taxable threshold, which is Rs. 2.5 lakh for individuals below the age of 60 years, Rs. 3 lakhs for individuals above 60 years but below 80 years, and Rs. 5 lakhs for individuals above the age of 80 years, for the financial year 2023-24, no Tax Deducted at Source (TDS) is applicable. This means that if someone’s overall income, including interest income, remains below the taxable slab rate, they are not liable to pay any tax on it.

In situations where an individual’s total income is below the taxable slab rate, but they may still earn more than Rs. 40,000/- in case of senior citizen Rs. 50,000/-in interest income from bank deposits or other sources, the bank is typically required to deduct TDS on interest earned. However, to prevent such TDS deduction, individuals can submit either Form 15G or Form 15H to the bank.

Form 15G and Form 15H serve as self-declaration forms wherein individuals affirm that their total income for the relevant financial year does not exceed the basic exemption limit. Form 15G is typically for individuals below 60 years of age, while Form 15H is for senior citizens aged 60 years and above. By submitting either of these forms to the bank, individuals declare that they are not liable to pay tax on their income, and consequently, the bank is not required to deduct TDS on their interest income.

It’s important to note that these forms need to be submitted at the beginning of each financial year to ensure that the bank does not deduct TDS on interest income throughout the year. Additionally, the information provided in these forms must be accurate and truthful, as false declarations can lead to legal repercussions.

Form 15G:

Form 15G is a declaration form under the Income Tax Act, 1961 in India. It is used by individuals (including Hindu Undivided Families) to declare that their income for the financial year is below the taxable limit and thus no tax should be deducted at source (TDS) from certain types of income.

Here are some key points about Form 15G:

Purpose: The primary purpose of Form 15G is to prevent TDS deduction on interest income from fixed deposits, recurring deposits, and certain other sources for individuals whose total income is below the taxable threshold.

Eligibility: Individuals (including HUFs) whose total income for the financial year is below the taxable limit (currently ₹2.5 lakh for individuals below 60 years can submit Form 15G to the financial institution paying interest income.

Submission: The form should be submitted to the relevant financial institution where the individual has investments generating interest income.

Validity: The declaration made in Form 15G is valid only for the financial year in which it is submitted. Therefore, individuals need to submit a new Form 15G for each financial year if they meet the eligibility criteria.

Penalty for False Declaration: Providing false information in Form 15G can lead to penalties under the Income Tax Act.

Form 15G provides relief to individuals with low income by preventing unnecessary TDS deduction on interest income, allowing them to receive their full interest earnings. However, it’s essential to understand the eligibility criteria and comply with the rules to avoid penalties.

Contents in Form 15G:

Personal Details Section:

a) Provide your name, address (including flat/door/block no., premises, road/street/lane, area/locality, town/city/district, state, and PIN), email, telephone number (with STD code), and mobile number.

b) Fill in your PAN (Permanent Account Number).

c) Mention the assessment year for which the declaration is being made.

d) Specify your residential status.

e) Enter the details of your last assessment year, including the year assessed, ward/circle, and assessing officer details.

f) If your present assessing officer (AO) is different from the one assessed previously, provide the details of the present AO.

Part I Section:

Tick the relevant box to indicate the source(s) of income for which you are submitting Form 15G. These may include:

a) Dividends from shares (Schedule I)

b) Interest on securities (Schedule II)

c) Interest on sums (Schedule III)

d) Income from units (Schedule IV)

e) Amount of withdrawal from National Savings Scheme (if applicable)

f) Estimate your total income from the specified sources for the previous year.

Investment Details Section (Schedule I, II, III):

a) Provide details of investments corresponding to the selected source(s) of income.

b) For shares (Schedule I), include the number, class, face value, total value, distinctive numbers, and acquisition dates.

c) For securities (Schedule II), provide descriptions, numbers, amounts, and acquisition dates.

d) For sums given on interest (Schedule III), list the names and addresses of the recipients, amounts, dates given, periods, and interest rates.

Jurisdiction Details Section:

Specify the jurisdictional Chief Commissioner of Income-tax or Commissioner of Income-tax if you have not been assessed to income tax earlier.

Declaration and Verification:

Sign and date the declaration. Ensure it is signed by the individual claiming the receipts without deduction of tax.

Submission:

• Submit the filled form to the concerned financial institution or entity where the income is derived from.
• Ensure that all information provided is accurate and complete. If you have any doubts or concerns about filling out the form, consider seeking assistance from a tax professional or consulting the Income Tax Act guidelines.

Form15H

Form 15H is a declaration form under the Income Tax Act, 1961 in India, similar to Form 15G. However, form 15H is specifically for senior citizens aged 60 years or above, while Form 15G is for individuals below 60 years of age. Here are the key points about Form 15H:

Purpose: Form 15H is used by senior citizens to declare that their total income for the financial year is below the taxable limit, and thus, no tax should be deducted at source (TDS) from certain types of income.

Eligibility: Only individuals who are senior citizens (aged 60 years or above) at any time during the financial year can submit Form 15H. They must declare that their total income for the year is below the taxable threshold.

Submission: The form should be submitted to the relevant financial institution where the individual has investments generating interest income.

Validity: Like Form 156, the declaration made in Form 15H is valid only for the financial year in which it is submitted. Therefore, senior citizens need to submit a new Form 15H for each financial year if they meet the eligibility criteria.

Penalty for False Declaration: Providing false information in Form 15H can lead to penalties under the Income Tax Act.

Form 15H serves the same purpose as Form 156, providing relief to senior citizens with low income by preventing unnecessary TDS deduction on interest income, allowing them to receive their full interest earnings

Contents in Form 15H: 

Part I:

a) Name of Assessee (Declarant): Write your full name.

b) PAN of the Assessee: Provide your Permanent Account Number.

c) Date of Birth (DD/MM/YYYY): Mention your date of birth in the specified format.

d) Previous year (P.Y): Mention the previous financial year.

e) Flat/Door/Block No.: Provide your flat, door, or block number.

f) Name of Premises: Write the name of your residence or premises.

g) Road/Street/Lane: Specify the road, street, or lane of your address.

h) Area/Locality: Mention the area or locality where your address is located.

i) Town/City/District: Provide the name of your town, city, or district.

j) State: Specify the state.

k) PIN: Write your Postal Index Number (PIN).

l) Email: Provide your email address.

m) Telephone No. (with STD Code) and Mobile No.: Mention your contact numbers.

(a) Whether assessed to tax: Tick “Yes” or “No” as applicable. If “Yes,” provide the latest assessment year.

Estimated income for which this declaration is made: Mention the income for which you’re making this declaration.

Estimated total income of the P.Y. in which income mentioned in column 15 to be included: Specify the total income of the previous year where the income mentioned in column 15 should be included.

Details of Form No. 15H other than this form filed during the previous year, if any: Provide the number of Form No. 15H filed and the aggregate amount of income for which Form No. 15H was filed during the previous year.

Details of income for which declaration is filed: Provide details such as the nature of income, section under which tax is deductible, and amount of income.

Declaration/Verification:

• Place: Write the place where you are signing the form.
• Signature of the Declarant: Sign the form.
• Date: Mention the date of signing the form.

Important Note:

♦ Ensure all details are correctly filled in and are accurate to the best of your knowledge. + The declaration states that the information provided is true and that you’re eligible for the tax benefits mentioned in the form.

♦ If you have any doubts or complexities regarding your income or tax situation, it’s advisable to consult with a tax advisor or cost management accountant or chartered accountant.

Conclusion:

In conclusion, the provisions outlined in Section 194A of the Income Tax Act offer relief to individuals and Hindu Undivided Families (HUFs) whose total income falls below the taxable slab rates. For the financial year 2023-24, if an individual’s income, including interest income, remains below the specified thresholds—Rs. 2.5 lakh for individuals below 60 years, Rs. 3 lakhs for individuals aged 60 to 80 years, and Rs. 5 lakhs for individuals above 80 years—no Tax Deducted at Source (TDS) is applicable.

However, in situations where interest income exceeds Rs. 40,000/- (Rs. 50,000/- for senior citizens), banks are obligated to deduct TDS. To prevent such deductions, individuals can submit Form 15G or Form 15H, depending on their age category, affirming that their total income does not surpass the basic exemption limit. These self-declaration forms serve as an effective mechanism to avoid unnecessary TDS deductions on interest income.

It is crucial for individuals to submit these forms at the beginning of each financial year to ensure uninterrupted exemption from TDS. Moreover, accuracy and truthfulness in providing information are paramount, as false declarations can result in legal repercussions.

By leveraging the provisions of Form 15G and Form 15H, individuals and HUFs can manage their tax liabilities effectively, optimize their financial outcomes, and ensure compliance with regulatory requirements.

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Disclaimer: The content provided above regarding “Exemption from TDS Deduction under Section 194A for Individuals or HUF Below Taxable Income Slab Rates” is intended for informational purposes only. It does not constitute legal, financial, or tax advice. Tax laws and regulations are subject to change, and the applicability of exemptions may vary based on individual circumstances. Readers are advised to consult with a qualified tax professional or financial advisor to understand their specific tax situation and to determine the appropriate actions to take. The author and the platform shall not be held responsible for any inaccuracies, errors, or omissions in the information provided, nor for any actions taken based on this information.