Section 194A – TDS on Interest Other than Interest on Securities

Section 194A covers the provision for TDS deduction on interest other than securities. This means it covers interest earned on fixed deposits, recurring deposits, unsecured loans and advances, etc.

Who is liable to deduct TDS under Section 194A?
Any person, other than an individual or a Hindu undivided family, making the payment of interest, other than interest on securities. In the case of individual or a Hindu undivided family, only if they are carrying of business or profession having gross receipts or turnover of more than Rs.1 crores or Rs.50 lakhs respectivley are liable to make TDS.

When does TDS Under Section 194A Need to be Deducted?

The payer/deductor shall deduct TDS if the amount of such interest paid or credited or is likely to be paid or credited in a financial year,  exceed

40,000 where the payer is

• Banking company or any bank or a banking institution
• Co-operative society engaged in the business of banking
• Post office (on deposit under scheme framed and notified by Central Government).

5,000 in any other case

• From FY 2018-19 onwards no TDS will be deducted on interest earned upto INR 50,000 by senior citizens. The interest amount should be earned from the following:
  • Deposits with banks;
  • Deposits with post offices
  • Fixed deposit schemes
  • Recurring deposit schemes

When is Tax deducted at NIL Rate or Lower Rate?

This happens under the following scenarios:

When a declaration is submitted in form 15G/15H u/s 197A

If a declaration is submitted under Section 197A by the recipient to the payer along with his/her PAN, then no tax is deductible if the following conditions are satisfied:

• Recipient is a person other than a company or firm
• Tax on total income of the Financial year (FY) is NIL
• Total income does not exceed the exemption limit (i.e. for AY 2024-25, Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is NOT applicable if the recipient is a resident senior citizen.
• Such a declaration shall be given in duplicate form 15G (15H for senior citizens). In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors can submit the declaration.
• Nominees of investors of SCSS can also produce the declaration at the time of payment after the death of the depositor.
• On submission of declaration to the bank, bank shall not deduct tax (subject to the conditions) on payment of interest.

When an application is submitted in Form 13 under Section 197

• As per provisions of Section 197, the recipient can apply in Form no.13 to the Assessing Officer to get a certificate authorizing the payer to deduct tax at lower rate (or deduct no tax, if certain conditions are satisfied).
• There is no time limit for application and it can be filed at any time before actual deduction of tax. If the recipient does not have PAN, he cannot apply for the certificate.
• The certificate shall be issued, directly to the person responsible for paying income, under an advice to the applicant.
• The certificate cannot be issued with retrospective effect. It shall have a validity from the date of issuance till the end of the Financial Year. It won’t be issued for multiple FYs.
• The recipient may furnish copy of such certificate to the person responsible for paying the income for lower/no deduction of tax at source.

What is the Rate of TDS?

Following are the applicable rates of taxes:

• 10% when the PAN is furnished (the rate is 7.5% for interest credited from 14th May, 2020 until 31st March, 2021 as a COVID-19 relief measure);
• 20% if the PAN is not provided.
• No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

What is the Time Limit for Depositing TDS ?

• Tax Deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax Deducted in the month of March is to be deposited on or before 30th April.
• For example, tax deducted on 25th April is to be deposited on or before 7th May and tax deducted on 15th march is to be deposited on or before 30th  April.

Relevant Case Laws

1. UCO Bank V. Dy . CIT (2014) 369 ITR 335 (Del)

Is section 194A applicable in respect of interest on fixed deposits in the name of Registrar General of High Court?

Analysis & Decision

The expression “payee” u/s 194A would mean the recipient of income whose account is maintained by the person paying interest. The Registrar General is neither recipient of the amount credited to his account nor to interest accruing thereon. Therefore, he cannot be considered as a ‘payee’ for the purposes of section 194A. In the absence of a payee, the machinery provisions for deduction of tax to his credit are ineffective. The credit by the bank in the name of the Registrar General would, thus, not attract the provisions of section 194A. Note – The CBDT has accepted the aforesaid judgment and accordingly, vide Circular No.23/2015 dated 28.12.2015, clarified that interest on FD` made in the name of 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.

2.  In Aggarwal Chamber of Commerce Ltd. vs. Ganpat Rai Hira Lal (supra)

The Supreme Court has held that persons who are bound under the IT Act to deduct income-tax at the time of making payment of any income, profits or gains are not concerned with the ultimate result of the assessment of the person to whom the payment is made. The above decision of the Supreme Court clearly establishes the proposition that whatever might be the ultimate tax liability insofar as the recipient is concerned, that is not the concern of the person paying interest and the ultimate result of the payee would not affect the liability of the person responsible for paying the interest under s. 194A of the Act.

Therefore, the person responsible for crediting interest is not concerned with the effect of his act of deducting tax at source at the time of credit of the amount and the ultimate tax liability that may be borne by the payee. In other words, the tax liability of the payee is a matter that has to be adjudicated by the ITO in assessing the income of the payee when the officer makes the assessment of the said person.

Therefore, in our view, the person responsible for crediting interest under s. 194A of the Act is not really concerned with the ultimate tax liability to the payee.