Any person makes the payment of interest, other than interest on securities to a resident person or credited to the account or to suspense account or to any other account, then he has to deduct tax on the amount of interest at the rate of 10%. Tax is to be deducted either on the date of payment or date of credited in account which ever come first. This article provides a comprehensive overview of the provisions, responsibilities, exemptions, and procedural aspects associated with TDS under Section 194A.
Person who is responsible for TDS.
Any person other than Individual or Hindu Undivided Family (HUF), i.e. partnership firm, company, trust etc. makes payment of interest, have to deduct tax.
Over and above, under following circumstance Individual and Hindu Undivided Family also have deduct tax.
From 1st April, 2020, during the financial year any payment or credit entry made, if turnover or sale of business exceed Rs. 1 crore or gross receipts of profession exceed Rs. 50 lakhs for previous year.
Rate of TDS:
Under Section 194A rate of Tax Deducted at Source is 10%. Please remember that neither surcharge nor education sees will apply. On and from 1st April, 2010, if the recipient is not provided their Permanent Account Number (PAN), the rate of TDS will be at the rate of 20%.
Tax is not to be deducted on Interest under following circumstances:
As per Section 194A (3), if the amount of interest is less than Rs. 5,000 during the year, tax is not to be deducted.
If the amount of interest up to Rs. 50,000 to a Senior Citizen paid by Bank, Co Operative Society or Post Office, and any other person, the amount of interest paid is Rs. 40,000 no Tax is to be deducted.
Payment under following circumstances no Tax is to be deducted.
(1) Payment of interest to Bank
(2) Payment of interest to Financial Corporation
(3) Payment of interest to Life Insurance Corporation
(4) Payment of interest to Unit Trust of India
(5) Payment of interest to any institutes, which has been recognized by Central Government
(6) Interest paid or credited by firm to their partners
(7) Interest paid by Co Operative Societies to their members
(8) Any scheme published by Central Government in Gazette, specified for not to deduct tax on interest
(9) Interest paid to Central Government Department for short payment of tax.
(10) Any interest receivable, less than Rs. 50,000 under Motor Vehicle Act, in respect of recompense.
(11) Income from Zero Coupon Bond, issued by Infrastructure Capital Company.
As per amendment from 1st April, 2020 turnover of co-operative society for the previous year is more than Rs. 50 crore and co-operative society has paid interest more than Rs. 40,000 and Rs. 50,000 for Senior Citizens, tax is to be deducted.
Education Institutes and Religious Trust:
As per the circular no F 12/113/68 IT (A-11) dated 28/10/1968 of CBDT, the income of educational institutes are exempt u/s 10(22), now Section 10(23C), therefore tax is not to be deducted. Same way so far as religious trusts are concern, their income is exempt u/s 11 of the Act. The trust has to obtain exemption certificate u/s 197A of the Act, from the income tax officer, so provision of section 194A will not apply.
Interest paid to Finance Company:
If any amount of loan taken from Finance Company or Non-Banking Finance Company (NBFC), and on that loan amount any interest is paid, Tax is to be deducted at source.
Interest received under Land acquisition Act:
While acquisition of land any interest paid on loan, tax is to be deducted at source.
Interest received from Insurance Company:
If insurance company take time for issue of claim, on that they have to pay interest on delayed payment after deducting tax.
Tax Deduction by Bank on interest credited on minors account
As per section 64(1A) of the Income Tax Act, the income of minor child is to be clubbed with the income of his father/mother whose income is higher. If the deposit of minor, father and mother is in one bank, then interest of all the person is considered for tax deduction? The answer is no, tax is to be deducted on individual interest credit to the account.
Renewal of Bank Deposit with interest:
Many times depositor renew their deposit with interest thereon and not taking amount of interest. Whether tax is to be deducted on the amount of interest, as it has not been taken? Section 194A provides that amount of interest is taken or credited Tax is to be deducted.
Adjustment of Tax Deduction is possible:
Suppose by mistake tax is deducted more than requirement, the adjustment is possible for other deduction? This kind of adjustment is possible only in the year in which tax is deducted more, it can be adjusted in next year.
Tax is to be deducted at lower rate?
Suppose if the total income is not taxable and tax is to be deducted, for not to deduct tax assesse can make an application in Form No 13 and lower deduction of tax or no deduction of tax certificate from income tax officer. [Section 197(1)].
Conclusion
Understanding the provisions of TDS under Section 194A is crucial for entities making interest payments and ensures compliance with tax regulations. This detailed analysis sheds light on the complexities of TDS, providing clarity on rates, exemptions, responsibilities, and procedural aspects.
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Can there be TDS ON Interest paid or credited by firm to their partners?