Basic Provisions of Section 194A:

Section 194A of the Income Tax Act, 1961, governs the deduction of Tax Deducted at Source (TDS) on interest payments other than interest on securities. Here are the essential features of this section:

1. Applicability:

   • Any person, other than an individual or Hindu Undivided Family (HUF), paying interest (other than interest on securities) to a resident is required to deduct TDS.
   • If individuals or HUFs are liable to get their accounts audited as per section 44AB, they are also required to deduct TDS on interest payments to a resident as per the provisions of section 194A.

2. Point of Time for TDS Deduction:

   • TDS is to be deducted at the earlier of the following dates:
     • At the time of credit of income to the payee’s account or in a Suspense/Provisional Account.
     • At the time of payment in cash, cheque, draft, or any other mode.

3. TDS on Provisional/Suspense Entry:

   • When an amount is credited to a suspense or provisional account, it is deemed equivalent to being credited to the payee’s account, and TDS becomes applicable.
   • Provisions recorded in the books of accounts where TDS provisions are applicable necessitate tax deduction at source.

4. Time Limit for Deposit of TDS:

   • The deductor is required to deposit the deducted TDS within the due dates:
     • For April to February, the 7th of the next month.
     • For March, on or before 30th April.

Threshold Exemption Limit under Section 194A:

• TDS is not required to be deducted if the aggregate amount of interest doesn’t exceed INR 40,000 (INR 50,000 for senior citizens).
• Threshold exemption limits for TDS under section 194A:
  • Bank: INR 40,000
  • Co-operative Society: INR 40,000
  • Post office: INR 40,000

List of Interest Exempted under Section 194A:

• Interest paid to banks, financial corporations, Life Insurance Corporation, Unit Trust of India, companies, or co-operative societies engaged in the insurance business.
• Interest paid by a partnership firm to its partners.
• Interest paid by a co-operative society to its members.

Rates of TDS on Interest (Other than Interest on Securities):

• The TDS rate on interest other than interest on securities under Section 194A is 10%.
• If the Permanent Account Number (PAN) is not furnished, the TDS rate is 20%, which is the maximum marginal rate.

TDS on Different Types of Interest:

1. TDS on Interest from Fixed Deposits:

   • Applicability: TDS is applicable on interest earned from fixed deposits in banks, cooperative societies, and post offices.
   • Threshold: TDS deduction threshold is set at Rs. 40,000 for individuals and Rs. 50,000 for senior citizens.
   • Rates: TDS rate is 10%, or 20% if PAN is not furnished.
   • Exemptions: Individuals can submit Form 15G or 15H for exemption if their total income is below the taxable limit.

2. TDS on Bonds:

   • Applicability: TDS is applicable on interest earned from bonds issued by companies, government institutions, and financial institutions.
   • Threshold: TDS deduction threshold for bond interest is Rs. 5,000.
   • Rates: TDS rate is generally 10%, but rates may vary depending on various factors.

3. TDS on Interest Paid to NBFCs:

   • Applicability: TDS is applicable on interest payments made by individuals or companies to Non-Banking Financial Companies (NBFCs).
   • Rates: TDS rate is generally 10%, but rates may differ based on the nature of the payment and other factors.

Conclusion: Section 194A of the Income Tax Act ensures the deduction of TDS on interest payments other than interest on securities. It is crucial for both payers and recipients of interest income to comply with the provisions of this section. Payers must deduct and deposit TDS, issue TDS certificates, and ensure timely compliance. Recipients must include TDS details in their income tax returns and stay informed about the latest tax laws. By following these compliance requirements, both parties can avoid penalties and contribute to transparent tax practices.