TDS on Interest other than interest on securities [Section 194A] – TDS Rate, Exemption, Applicability

0

TDS on Interest other than interest on securities [Section 194A]: Any person not being an individual or a H.U.F. who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities amounting to more than rupees 5,000 or Rs. 40,000 or Rs. 50,000 in case of senior citizen w.e.f. 01.04.2018 as the case may be, shall, at the time of crediting to the payee or at the time of payment or the interest, deduct tax at the prescribed rates.

TDS on Interest other than interest on securities [Section 194A]

TDS on Interest other than interest on securities [Section 194A] - TDS Rate, Exemption, Applicability

Also Read:

This section deals with the scheme of deduction of tax at source from interest other than interest on securities. The main provisions are the following:

Applicability of TDS under section 194A

This section applies only to interest, other than “interest on securities”, credited or paid by assessees other than individuals or Hindu undivided family. However, an individual or Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed ₹1 crore in case of business and ₹50 lakhs in case of the profession during the immediately preceding financial year is liable to deduct tax at source under this section.

These provisions apply only to interest paid or credited to residents.

Who is responsible to deduct tax

Following person are responsible to deduct tax at source on interest other than interest on securities to a resident person –

  • Any person, other than Individual or HUF; or
  • An individual or a HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed ₹ 1 crore in case of business or ₹ 50 lakh in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid.

Note: No tax shall be deducted at source if during the financial year, interest payable by the payer to payee does not exceed ₹ 5,000.

However, following persons are responsible to deduct tax at source on interest other than interest on securities paid or payable to a resident person if during the financial year, interest paid/payable exceeds ₹ 40,000 (₹ 50,000 in case payee is a senior citizen):

  1. A banking company;
  2. Co-operative society engaged in carrying on the business of banking;
  3. Post office in respect of notified scheme

Taxpoint:

In case of interest payable by banking company or co-operative society or housing company, such limit shall be computed with reference to branch. However, where payer has adopted Core Banking Solution (CBS), the aforesaid limit shall be computed with reference to entity and not branch.

When tax shall be deducted

At the time of payment or crediting the payee, whichever is earlier.

The deduction of tax must be made at the time of crediting such interest to the account of the payee or at the time of its payment in cash or by any other mode, whichever is earlier.

Where any such interest is credited to any account in the books of account of the person liable to pay such income, such crediting is deemed to be credit of such income to the account of the payee and the tax has to be deducted at source. The account to which such interest is credited may be called “Interest Payable account” or “Suspense account” or by any other name.

Rate of TDS on Interest other than interest on securities

The rate at which the deduction is to be made is given in Part II of the First Schedule to the Annual Finance Act. The rate at which tax is to be deducted is 10% both in the case of non-corporate resident assessees and domestic companies.

When the payee does not furnish his PAN to deductor, TDS on Interest other than interest on securities will be deducted @ 20%.

In order to provide more funds at the disposal of the taxpayers for dealing with the economic situation arising out of COVID-19 pandemic, the rate of TDS u/s 194A has been reduced from 10% to 7.5% (i.e., 3⁄4th of the specified rate) for the period from 14th May, 2020 to 31st March, 2021 [Section 197B].

Rate of TDS on Interest other than interest on securities: 10% (No surcharge, health and education cess) [From 14-05-2020 to 31-03-2021: 7.5%]

Taxpoint:

The Central Government may notify that the deduction of tax shall not be made or shall be made at such lower rate, from payment made to specified person.

Non-applicability of TDS under section 194A

Other points Following interests are not subject to TDS –

  • Interest payable to –
    1. Banking company; or
    2. Co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank); or
    3. Financial corporation established by or under a Central, State or Provincial Act; or
    4. The Life Insurance Corporation of India; or
    5. The Unit Trust of India; or
    6. Any company or co-operative society carrying on the business of insurance; or
    7. Such other notified institution, association or body [No notification shall be issued after 31-03-2020].
  • Interest credited or paid by a firm to a partner of the firm;
  • Interest 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
  • Interest on deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;
  • Interest on deposits (other than time deposits) with a co-operative society, other than a co-operative society or bank referred above, engaged in carrying on the business of banking.

Exception [in case of co-operative society]

Aforesaid co-operative society shall be liable to deduct tax, if:

  1. the total sales, gross receipts or turnover of the co-operative society exceeds ₹50 crore during the financial year immediately preceding the financial year in which the interest is credited or paid; and
  2. the aggregate of the amounts of such interest, credited or paid, during the financial year is more than ₹50,000 in case of payee being a senior citizen (₹40,000 in other cases).

Interest credited or paid in respect of deposits under any notified scheme like NSC, Indira Vikas Patra, Kisan Vikas Patra and Post office Monthly Income Account.

Interest credited or paid in respect of deposits (other than time deposits and recurring deposit) with a banking company.

TDS is also required to be deducted on Recurring Deposits.

Interest credited on the compensation amount awarded by the Motor Accidents Claims Tribunal;

Interest paid 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 ₹50,000

Interest credited or paid by the Central Government under any provision of the Income Tax Act or the Wealthtax Act, 1957

Income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a Zero Coupon Bond issued on or after 1-6-2005 by such company or fund.

Income by way of interest referred to in sec. 10(23FC)

Interest on FDRs, made in the name of the Registrar General of the Court or the depositor of the fund on the directions of the Court, will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the recipient of the income

Exemption or relaxation from the provision

  • When the recipient applies to the assessing officer in Form No. 13 and gets a certificate authorizing the payer to deduct tax at lower rate or deduct no tax. [Refer sec.197]
  • When a declaration in Form 15G is furnished by the assessee to the payer [Refer sec.197A]

Adjustment for short-deduction

The person responsible to deduct tax may at the time of making any deduction, increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.