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TDS on Interest Payments – Sec 194A

Introduction:

TDS Section 194A is associated with a TDS deduction on interest. This Interest deals with other than interest on securities like Interest on Deposits, Loans, and Advances other than banks.

Who does it Applicable too?

The section is applicable to the resident. Payments that are made to non-residents are covered under the TDS Section of 195.

When to be detected under TDS 194A?

• Person except for the individual or HUF, who is paying interest other than interest on securities to a resident is required to deduct TDS.
• When the individual or HUF is liable to get their accounts audited as per section 44AB, then, that individual or HUF would be required to deduct TDS on payment of interest other than interest on securities to a resident as per provisions of section 194A.
• Section 194A is applicable only in case of payment of interest to a resident.

Time for TDS Deduction

• The credit of the amount to the payee’s account
• Payment of amount to the payee either in the mode of cash/ cheque/ draft or any other medium, whichever is to be credited earlier.

Rates of TDS
• Usually it is 10%, But due to covid, the rate is 7.5% for interest credited from 14 May 2020 until 31 March 2021 as a COVID-19 relief measure.
• However if PAN is not produced it constitutes 20%

Taxes on Low or Nil rates

• When a declaration is under Section 197A by the recipient to the payer along with his/her PAN, then no tax is deductible if the below are satisfied:
• If a Recipient is a person other than a company OR firm
• If Tax on total income of the previous year is NIL
• If Total income does not exceed the exemption limit (i.e. for AY 2020-21, 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 and senior citizen.
• If Such a declaration shall be given in duplicate form 15G, 15H for senior citizens).
• If In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors can submit the declaration.
• If 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, the bank shall not deduct tax based on the conditions on payment of interest.

Time Limit

The deductor who deducts TDS under this section 194 A need to follow the below timeline details for depositing
If Deducted in the time period of April to February, then the 7th of the upcoming month the tax has to be deposited. If Deducted in march, then it is deducted on or before the 30th of April.