Hiral Vakil
TDS
TDS Sections
Last updated on February 3rd, 2023
Section 194A is only applicable to residents and it deals with interest other than interest on securities like Interest on Loans and advances, Interest on Fixed deposits, and recurring deposits.
INDEX
- What is Section 194A?
- When to deduct TDS under section 194A?
- What is the threshold limit under section 194A?
- TDS rates under Section 194A
- Who is exempt from deduction of TDS on Interest u/s 194A?
- When is tax deducted at NIL Rate?
- TDS Return
- FAQs
What is Section 194A?
As per section 194A of the Income Tax Act, TDS on interest other than interest on securities is required to be deducted by any person other than an Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess, or SHEC shall be added in addition to the above rate.
However, in case of individual or HUF where the gross receipts or total sales or turnover of the previous financial year exceeds the monetary limits by way of business or profession provided u/s 44AB ( ie 1cr in case of business and 50 lakhs in case of profession) then both shall be responsible to deduct TDS on the payment of Interest.
When to deduct TDS under section 194A?
The TDS shall be deducted at the time of payment. The date of payment will be considered earlier of the following:
- Date of credit to the account of a payee or
- Actual payment date or
- Date of issue of the cheque, draft, or any other mode.
What is the threshold limit under section 194A?
TDS shall not be deducted on an amount of interest falling below INR 40,000 where the payee is:
- Banking Company
- Cooperative society engaged in Banking Business
- Post office
Hence, in any other cases, the threshold limit of INR 5,000 shall apply.
TDS rates under Section 194A
- It shall be deducted at the rate of 10% in case where the payee is a resident.
- However, It shall be deducted at the rate of 20% in the case where the payee does not provide the PAN.
Who is exempt from deduction of TDS on Interest u/s 194A?
Section 194A of Income Tax Act shall not apply in the following cases :
- Interest is paid or credited to
- Banking Company
- Co-operative Bank
- Public Financial Institutions
- LIC
- UTI
- Company or Co-operative society carrying out a business of Insurance
- Income paid or Credited by a firm to the partner of the firm.
- Income paid/ credited by the co-operative society ( other than a co-operative bank) to its members or any other co-operative society.
- Interest paid by the central government on the time deposits on the scheme notified in the official gazette
- Credited interest on deposits ( other than time deposits ) by the Banking company
- Interest credited in respect of primary agricultural society or primary credit society or Co-operative land mortgage bank.
- Any interest credited by the Central government under the provision of the following Acts
- Income tax Act 1961
- Estate duty Act 1953
- Wealth tax Act 1957
- Gift tax Act 1958
- Super Profit Tax Act 1963
- Companies (profit) surtax Act 1964
- Interest- tax Act 1974
- Interest on compensation awarded by way of Compensation awarded up to Rs 50000 by the motor accident claims tribunal
- Income/ Interest paid by companies or infrastructural companies on Zero Coupon Bonds
- Interest referred in section 10 (23FC)
When is tax deducted at NIL Rate?
Tax is deducted at the NIL rate when a declaration is submitted inform 15G/15H. When form 15G/15H is submitted by the recipient then no need to deduct TDS if the following conditions are satisfied:
- A recipient is a person other than a Firm or Company
- Tax on the total income of the recipient for the Previous Year is NIL.
- Total Income of the current year does not exceed the exemption limit. This condition is not applicable if the recipient is a resident senior citizen.
TDS Return
The payer/deductor deducting TDS under section 194A shall file a Quarterly return of TDS in Form 26Q. Further, the quarterly return needs to be filed within 1 month from the end of the relevant quarter.
Find the best plan
Find the best plan
GET EXPERT HELP
Find the best plan
Find the best plan
FAQs
Is interest paid to NRI covered u/s 194A?
No, interest paid to NRI is not covered u/s 194A. If any payments are made to NRI then tax is to be deducted as per section 195.
Whether Interest from a savings bank account subject to TDS under section 194A?
No, Savings bank account interest is exempt from TDS rules only interest from the fixed deposit and recurring deposit is liable for tax deduction under section 194A.
Is TDS applicable on the EMI of a loan?
No, TDS is not applicable on EMI loans in case interest is paid to banks. TDS is only required to be deducted if the interest on the loan is paid to other parties.
Hey @Dia_malhotra
As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.
Hope this helps!
Hey @HarishMehta
TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:
- Fees for professional services
- Fees for technical services
- Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
- Royalty
- Any sum referred to in clause (VA) of section 28.
Hope this helps!
Hello @the_AK,
Against gross income, you can claim business expenses that you have incurred for earning that income. So you can claim this service fee as a business expense from the gross income received by you.
Hope this helps!
Hey @Bharti_Vasvani can you please help here?
Hello @Anuj_Agarwal,
TDS will be deducted by the company when the interest is actually paid on the securities, so at that time whoever is the owner of such security shall receive the interest and can claim credit of interest.
Hope this helps!
I have respectable salary income and 1000 insurance commission…ie old commission…not claiming any expenses…can i show it as other income in itr1 or have to file itr 3
Hi @Shivam_B
If you have income from salary and income from insurance commission (business income), then you will be required to file ITR 3.
Itr 3 is so big…have to pay heavy charges…for filing…will it be defective if i do so ie reporting 1000 as other income in itr1 along with salary income…have closed down the insirance work since yesrs…i even contacted commssiom giving broker and closed my commission account…still they are showing in 26as wheress i am not receiving in real
Hi @Shivam_B
As per the recent utilities, ITD gives you the option to select only the schedules applicable to you while filing ITR.
Thus, you are not required to go through the entire ITR 3 form. You can also prepare and file ITR on Quicko, where you can upload form 16 and add commission income under the head “Business & Profession” and file ITR 3, without any charges as Quicko is a DIY platform helping individuals to file taxes.
Greetings, enthusiasts and professionals in the realm of taxation and financial regulations. My name is [Your Name], and I bring to you a wealth of expertise in the intricate domain of income tax, specifically focusing on Tax Deducted at Source (TDS) under Section 194A of the Income Tax Act.
My journey into the intricacies of tax regulations began years ago, where I delved into the nuances of TDS provisions and their applications. Through practical experience and continuous learning, I have gained a profound understanding of the legal frameworks, procedural intricacies, and evolving nuances in this complex field.
Now, let's unravel the key concepts embedded in the article you provided, which revolves around Section 194A of the Income Tax Act, as of the last update in February 2023:
1. Section 194A Overview:
Section 194A mandates TDS on interest (excluding securities) paid to residents. Notably, this applies to individuals and HUFs if their gross receipts exceed specified limits.
2. When to Deduct TDS (Section 194A):
TDS must be deducted at the time of payment, considering the date of credit to the payee's account, actual payment date, or date of issuing the payment instrument.
3. Threshold Limit (Section 194A):
TDS is not applicable if interest is below INR 40,000, but this limit is higher (INR 5,000) for entities like banking companies, cooperative societies engaged in banking, and the post office.
4. TDS Rates (Section 194A):
The TDS rate is 10% for resident payees, but it increases to 20% if the payee does not provide PAN.
5. Exemptions from TDS (Section 194A):
Certain entities, such as banking companies, cooperative banks, public financial institutions, and others, are exempt from TDS under Section 194A.
6. Nil Rate TDS (Section 194A):
Tax deduction is at a nil rate when the payee submits Form 15G/15H, provided the recipient is not a firm or company, and their total income is below the exemption limit.
7. TDS Return (Section 194A):
Payers must file a quarterly return of TDS in Form 26Q within one month from the quarter's end.
Additional Points:
- The article clarifies that interest paid to NRIs is not covered under Section 194A; instead, Section 195 applies.
- TDS is not applicable to savings bank account interest, only to fixed and recurring deposit interest.
- The article also mentions that TDS is not applicable to EMIs of loans if interest is paid to banks.
Feel free to engage with any queries or further discussions regarding these concepts.
