Section 194A: TDS on interest other than interest on securities

Section 194A of the Income Tax Act deals with the provisions relating to deduction of TDS on interest (other than interest on securities). Interest like interest paid on an unsecured loan, interest paid by banks on fixed deposits, interest paid on loans and advances, etc. are covered under the provisions of section 194A.

The present article helps to understand the provisions attached with Section 194A of the Income Tax Act, 1961.

Basic Provisions of Section 194A –

Essential features of section 194A are summarized hereunder –

• Any person, other than individual or HUF, who is paying interest (other than interest on securities) to a resident is required to deduct TDS.
• If the individual or HUF are liable to get their accounts audited as per section 44AB [clause (a) or (b)], then, such individual or HUF would be required to deduct TDS on payment of interest (other than interest on securities) to a resident as per provisions of section 194A.
• Section 194A is applicable only in case of payment of interest to a resident i.e., the provisions of section 194A doesn’t apply to the payment of interest to a non-resident. The same is covered within the purview of section 195.

Point of time when TDS is to be deducted –

The Deductor liable to deduct TDS as per provisions of section 194A is required to deduct TDS within earlier of the following dates –

• At the time of credit of income to the payee’s account; or
• At the time of payment in cash, cheque, draft or any other mode.

Rate of TDS on interest other than interest on securities –

If the provisions of section 194A of the Income Tax Act gets attracted, the Deductor is liable to deduct TDS on interest other than interest on securities @10%.

However, if the Permanent Account Number is not furnished, in that case, the Deductor would be liable to deduct TDS @20% i.e., maximum marginal rate.

The Time limit of depositing the deducted TDS –

The Deductor who has deducted TDS as per provisions of section 194A are required to deposit the same within the following due dates –

Threshold Exemption limit under section 194A –

TDS is not to be deducted under the following case –

List of interest exempted under Section 194A –

Some of the important lists of interest which is exempted under section 194A are –

• Interest paid to any bank, financial corporation, Life Insurance Corporation Unit Trust of India, any company or a co-operative society engaged in the insurance business.
• Interest paid by a partnership firm to the partners.
• Interest paid by co-operative society to its members.

Question –

What is Section 194A?

Section 194A covers provisions relating to deduction of TDS on interest other than interest on securities. If the provisions gets attracted, the TDS @10% is to be deducted by the Deductor.

What is 194A payment?

Section 194A payment is in the form of interest (other than interest on securities). Interest payment like interest on fixed deposit, interest on any loan or interest on recurring deposits are covered within the same.

Is TDS deducted on interest paid to bank?

No, when interest is paid to bank against the loan taken, TDS provisions are not applicable, and hence TDS is not deducted on interest paid to the bank.

Who is liable to deduct TDS under 194A?

The person who is paying interest (other than interest on securities) is liable to deduct TDS if the provisions of section 194A get attracted.

Is TDS deducted on interest to partners?

No interest paid by the partnership firm to partners are not covered within the purview of section 194A, and hence TDS is not required to be deducted.