TDS under Section 194A – Interest other than interest on securities

By CA Yash Shah 1

TDS under Section 194A. The topic relating to any TDS section is very much famous and on-going because there can be various complexity regarding the issues faced by individuals in normal business. So in this article I would make you understand the concept of Section 194A which is relating to the TDS which is to be deducted in case of Interest other than Interest on Securities. Now you can scroll down below n check more details regarding “TDS under Section 194A”

TDS under Section 194A

Interest other than interest on securities [Section 194A]

  • Applies only to interest paid or credited to residents
  • Not applicable to such individuals or HUF whose sale/receipts from business/profession does not exceed 1 crore and 50 lakh u/s 44AB in the immediately preceding FY
  • TDS should be deducted at the time of credit or payment, whichever is earlier
  • In case of banks: TDS shall be deducted on accrual of interest on time deposits.
  • TDS @ 10% (domestic company and resident non-corporate assessee)

Non-applicability:

  • Interest paid/credited during the FY =< 5,000
  • In case of time deposit (FD+RD), above limit will be 10,000 and 50,000 in case of resident senior citizen
  • Above limit applicable on total basis and not branch wise, where CBS system is followed
  • Interest by a firm to any of its partners
  • Interest by a co-operative society to its members or other co-operative society
  • Interest on deposits under any scheme framed and notified by the CG
  • Interest on deposits with credit society
  • Interest paid by CG under IT Act, Wealth tax act, Gift tax act etc.
  • Interest paid to:
    • Companies/societies engaged in banking business
    • Financial corporation under CG, SG
    • LIC, companies/societies in insurance business
    • UTI, Notified Institutions (National Skill Development)
    • Interest on compensation by Motor Accidents Claims Tribunal (Credited). When paid =< 50000
    • Interest in zero coupon bond after 01.06.2005
  • On FD made in the name of Registrar General of the Court till the matter is decided by the Court

In case of minor, where both the parents have deceased, TDS should 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

TDS in case of deposits under the Capital Gains Accounts Scheme, 1988 where the depositor has deceased:

  • Upto the period of death: against PAN of the depositor
  • After death of the depositor: against PAN of the legal heir, unless declaration filed for another person

What is the meaning of Interest ??

The word interest in this section would include the following:

  • Interest on Loans
  • Interests on Public Deposits
  • Interest on Inter-Corporate Loans
  • Interest on Commission Agent payment

Must Read – Don’t worry – No TDS on Post Office Recurring Deposit

The word interest in this section would not include the following:

  • Interest paid by a Firm to its partners.
  • Interest paid by Central Government under the provisions of the Income Tax Act.
  • Interest paid by a co-operative society to its members.
  • Interest paid by one banking company to other for the deposits made.
  • Interest paid by banking company to any institution which is notified by Central government such as LIC, UTI, etc.
  • Interest paid on Zero coupon bonds.
  • Interest paid to supplier for the late payment of the outstanding amount.
  • Discounting charges for the bill discounted or for the export purpose will not to defined as interest and therefore not liable for TDS.
  • Interest paid or credited on the schemes which are been notified by the Central Government.
  • Interest on the Deposits for the deposits with the primary agricultural society or any co-operative land development bank or any co-operative land mortgage bank.

Must Read – TDS on Employees Provident fund withdrawal

Exemption limit up to which no TDS:

The exemption limit for not deducting the tax on interest is Rs. 10,000 in case of Banking Companies and Rs. 5,000 in any other cases.

Rate of Deduction:

The Rate of Deduction under this Act is 10% in normal case and if any detail error such as Not having PAN then flat rate of 20% should be applied.

Deposit of the TDS so collected:

The TDS so credited should be paid on or before the seventh of the next month in which the TDS was credited. In case of month of March the TDS needs to be deposited within 30th of the month of April.

Must Read – Section 194c

Non Deduction in certain cases:

Where the deductee is providing the deductor the Form 15G/15H (As applicable), then the deductor will not be liable for deducting the Tax.

Issue of TDS Certificates:

The issue of TDS Certificates would be 15 days from the due date of filing of returns, i.e. in 1st quarter, the return is filed on 15th of July, then the due date for TDS Certificates would be 30th July.

TDS returns:

The deductor deducting the tax and depositing the same needs to make the details available to the government by furnishing returns under the law and submit the same within time limits prescribed in law for each kind of person.

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