Section 194A: INTEREST OTHER THAN INTEREST ON SECURITIES

TDS U/S 194A: INTEREST OTHER THAN INTEREST ON SECURITIES & ITS APPLICABILITY

1.What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: –

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2. What is TDS under Section 194A of Income Tax Act?

Section 194A of Income Tax Act, 1961 mandates the TDS on payment of interest made to a resident, excluding interest paid to partners of partnership firms. This includes TDS only of interest other than interest on securities.

3.When is TDS to be deducted under Section 194A?

TDS is required to be deducted: –

• At the time of payment.

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: –

S.no	Date of Payment	Date of crediting the party in books of accounts	Date of TDS deduction
1.	30/04/2024	30/04/2024	30/04/2024
2.	30/04/2024	01/05/2024	30/04/2024
3.	01/05/2024	30/04/2024	30/04/2024
4.	01/05/2026	30/04/2024	30/04/2024

4.Who is required to deduct TDS under Section 194A?

Any person other than Individuals and HUF (Individuals and HUF required to deduct TDS, if last year turnover is more than Rs. 1 crore in case of business or gross receipts more than Rs. 50 lakhs in case of profession.) are required to deduct TDS while making interest payments other than interest on securities to residents.

NOTE: –

This section i.e. TDS on interest other than interest on securities is not applicable while making such payments to non-residents.

5.Rate of TDS under Section 194A?

The TDS rate under this Section is 10%, however if the concerned person is unable to provide PAN to the payer, then TDS rate will be 20%.

Example: –

Mr. Mayank has an FD of Rs. 20 lakhs in DDB bank invested @8% interest rate. The total interest due to Mr Mayank during the year will be Rs. 1.6 Lakhs, so DDB bank must deduct TDS on Rs. 1.6 lakhs @10% i.e. Rs. 16,000.

6.Exemptions under Section 194A?

No TDS in the following cases: –

• Interest by Bank/ Co. op. Bank/ Post office on time deposits upto Rs. 40,000 (Rs. 50,000 for resident senior citizen).

• Interest by any other person upto Rs. 5,000.

• Interest on Saving Bank Account.

• Interest by Firm to Partners.

• Interest on Income Tax Refunds.

• Interest on Zero coupon bonds.

• Interest to Bank, Co. op. banks, Financial Corporations, LIC, Insurance companies, UTI, National skill Development Fund, Housing and Urban Development Corporation.

• Interest paid a Co-operative Society (other than Co-operative Bank) to another Co-operative Society or to any of its members.

• Interest by a Co-operative Society being bank to another Co-operative Society.

• Interest on compensation amount awarded by the Motor Accidents Claims Tribunal (MCAT) paid during the F.Y does not exceed Rs. 50,000.

7.Time limit for deposit of TDS under Section 194A?

The due date for deposit of TDS is as below: –

Month	Due Date
April	On or before 7^th May.
May	On or before 7^th June.
June	On or before 7^th July.
July	On or before 7^th August.
August	On or before 7^th September.
September	On or before 7^th October.
October	On or before 7^th November.
November	On or before 7^th December.
December	On or before 7^th January.
January	On or before 7^th February.
February	On or before 7^th March.
March	On or before 30^th April.

8.What is the due date for filing of TDS return under Section 194A?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: –

Quarter	Period	Due date (TDS filing)
1^St quarter	April-June	31^st July.
2^nd quarter	July-September	31^st October.
3^rd quarter	October- December	31^st January.
4^th quarter	January- March	31^st May.

9.Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10.Fees/ Penalties for Late/ Non- Filing of TDS u/s 194A?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

Particulars	Penalty
TDS not deducted on time.	1% per month or part of month.
TDS deducted but not deposited before due date	1.5% per month or part of month.
TDS return not file on or before due date	200 per day maximum till TDS amount.

NOTES: –

1.Interest accrued to Minor child where both the parents have deceased TDS is required to be deducted and reported against PAN of the minor child unless a declaration is filed that credit for tax deducted has to be given to another person.

2.Interest on Capital Gains Accounts Scheme A/c, where depositor has deceased: –

• TDS on interest accrued upto the death of the depositor is required to be deducted and reported against PAN of the depositor. and

• TDS on interest accrued for the period after death of the depositor is required to be deducted and reported against the PAN of the legal heir, unless a declaration is filed that credit for tax deducted has to be given to another person.

3.In case of banks following CBS software, no TDS should be made on Interest which is credited to a provision account on a daily or monthly basis only for the purpose of macro monitoring by CBS software since no amount is actually credited to depositor’s account. Thus, TDS is to be made at the time of actual credit given to depositor’s account and further, the limit of Rs. 40,000 shall be check bank wise not branch wise.

4.If the payee has submitted form 15G/ H to the payer then TDS will not be deducted.

Nayan Saluja & Company

Section 194A: INTEREST OTHER THAN INTEREST ON SECURITIES

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