Section 194A of the Income Tax Act deals with TDS on Interest payments by a resident to a resident. Section 194A shall to all Interest payments, other than Interest on Securities. For example, If you have earned an Interest of Rs.1,00,000 from a fixed deposit in the SBI, then SBI shall deduct TDS under section 194A before making you the Interest payment.
To Whom Section 194A is Applicable
Section 194A is applicable only to a Resident Indian. In other words, if the interest payment is being made to a Non-Resident, then this provision shall not apply.
TDS Threshold u/s 194A
TDS under section 194A is not deductible, if the Interest payments being made does not exceed the below mentioned threshold limits.
|If the Payer is a Bank, Co-operative society or a Post Office||Rs.10,000|
|If the Payer is anyone other than above||Rs.5,000|
TDS Rate u/s 194A
The TDS rate is different to the payee who has submitted their PAN and different to the ones who hasn’t submitted any PAN.
Interest from Core Banking
A second proviso has been inserted in section 194A(3)(i) to provide that the threshold limit will be reckoned with reference to the total interest credited or paid by the banking company or the co-operative society or the public company, as the case may be, (and not with reference to each branch), where such banking company or co-operative society or public company has adopted core banking solutions.
Cases where 194A is not applicable:
No deduction of tax on interest under section 194A shall be made in the following cases:
- Interest paid or credited by a firm to any of its partners
- Interest paid on Deposits of a Govt scheme
- Interest credited or paid in respect of deposits with primary agricultural credit society
- Any Interest paid on compensation from Motor Accidents Claims Tribunal (The aggregate shall not exceed Rs.50,000)
Interest from Time Deposits
The CBDT has, vide Circular No.3/2010 dated 2.3.2010, given a clarification regarding deduction of tax at source on payment of interest on time deposits under section 194A by banks following Core-branch Banking Solutions (CBS) software.
It has been clarified that Explanation to section 194A is not meant to apply in cases of banks where credit is made to provisioning account on daily/monthly basis for the purpose of macro monitoring only by the use of CBS software.