Is TDS under Section 194A applicable to non-residents?

Yes, Tax Deducted at Source (TDS) under Section 194A of the Income Tax Act is applicable to both residents and non-residents of India. This section is primarily concerned with the deduction of tax at source from any income by way of interest other than "interest on securities". The payer or deductor, when paying interest to the payee or deductee, is responsible for deducting this tax.

Is interest on savings accounts subject to TDS under Section 194A?

Yes, interest earned on savings accounts is subject to TDS under Section 194A. However, this is subject to certain thresholds. Interest earned up to INR 10,000 in a financial year on a savings account held by an individual is not subject to TDS. On the other hand, the interest earned on fixed deposits and recurring deposits is subject to TDS under section 194A.

How does Section 194A impact senior citizens?

Section 194A of the Income Tax Act has specific provisions to benefit senior citizens. If a senior citizen earns interest income from a bank exceeding INR 50,000 in a financial year, the banking institution is required to deduct TDS according to the provisions of this section. However, the limit for non-senior citizens is much lower, set at INR 10,000. Hence, the threshold limit is higher for senior citizens, providing them with a certain degree of tax relief.

Who is liable to deduct TDS under Section 194A?

Entities liable to deduct TDS under Section 194A include companies, firms, and individuals/HUFs engaged in business with turnover above prescribed limits; others are exempt.

Is interest paid to partners deducted under Section 194A?

Interest paid to partners is generally not subject to TDS under Section 194A, as it pertains to interest on loans or deposits, not partnership profit shares.

When TDS under Section 194A is to be deducted?

TDS under Section 194A must be deducted at the time of payment or credit of interest to the payee, whichever is earlier.

Is interest from savings banks subject to TDS under 194A?

Interest from savings bank accounts is exempt from TDS under Section 194A and not subject to deduction.

Which interest incomes are not covered under Section 194A?

Interest incomes exempt from Section 194A include interest on savings accounts, interest paid to certain entities like LIC, UTI, and interest below threshold limits. While managing your tax obligations, consider investing in a property with Bajaj Housing Finance Home Loan. With a flexible tenure of up to 32 years and no foreclosure fees, homeownership has never been more accessible. Check your loan offers today. You may already be eligible, find out by entering your mobile number and OTP.

Is TDS applicable on EMI of home loans?

TDS is not applicable on EMI payments of home loans, as EMIs are principal and interest repayments, not interest income payable to the borrower. Now that you understand how EMIs work with tax implications, take the next step towards homeownership with Bajaj Housing Finance Home Loan. With interest rates starting at just 8.25% p.a. and approval in 48 hours, your dream home is closer than you think. Check your eligibility now. You may already be eligible, find out by entering your mobile number and OTP.

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

Q: What is Section 194A of the Income Tax Act?

Section 194A of the Income Tax Act pertains to the deduction of tax at source (TDS) on interest other than interest on securities. It requires any person, other than an individual or Hindu Undivided Family, to deduct TDS at specified rates before crediting interest to the account of the payee.

Q: What is Section 194A?

Section 194A mandates TDS deduction on interest income other than interest on securities when it exceeds specified thresholds, ensuring tax collection at source.

Q: What is the rate of TDS under Section 194A?

The TDS rate under Section 194A is 10% if PAN is provided; 20% if PAN is not furnished by the recipient.

Section 194A: TDS Deduction on Interest

Discover the significance of Section 194A of the Income Tax Act, governing tax deduction at source (TDS) on interest income. Learn about exemptions, strategies to prevent TDS deductions, and ensure compliance.

2 min

09 May 2024

The Income Tax Act, 1961, Section 194A, is a crucial provision that governs the deduction of tax at source (TDS) on interest income other than interest on securities. It mandates that entities like banks, financial institutions, and other payers must deduct TDS before disbursing interest income exceeding a specified threshold to residents. This provision ensures tax compliance and helps in the smooth collection of revenue for the government.

When is Tax Deducted at NIL Rate or Lower Rate?

Tax can be deducted at a NIL or lower rate under Section 194A in specific cases. If an individual’s total income is below the taxable limit, they can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to avoid TDS deduction. Additionally, taxpayers can apply for a certificate under Section 197 from the Income Tax Department, allowing TDS at a lower rate. This is particularly beneficial for individuals with lower taxable income or those eligible for tax exemptions on interest earnings. Banks and financial institutions must verify these forms before waiving or reducing TDS on interest payments.

Nature of interest	TDS threshold (Rs.)
General limit	10,000
For senior citizens	1,00,000
For other individuals	50,000

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What is Section 194A of the Income Tax Act?

Section 194A of the Income Tax Act mandates the deduction of tax at source (TDS) on interest payments made to resident individuals, excluding interest paid to partners of a partnership firm. This includes TDS only on interest other than interest on securities. The payer or deductor must deduct TDS if the amount of such interest paid or credited in a financial year exceeds Rs. 40,000 (for banking companies, banks, and cooperative societies) or Rs. 5,000 (for other cases). However, from FY 2018–19 onwards, no TDS is deducted on interest earned up to Rs. 50,000 by senior citizens. If a recipient submits a declaration in Form 15G/15H or applies for a certificate under Section 197, TDS may be deducted at a lower rate or not at all.

TDS deduction under Section 194A

Section 194A of the Income Tax Act mandates the deduction of TDS on interest payments to resident individuals, excluding interest on securities. TDS must be deducted if the interest paid or credited exceeds Rs. 40,000 in a financial year (Rs. 50,000 for senior citizens and Rs. 5,000 in specific cases such as interest from corporate bonds). However, individuals can submit Form 15G/15H to claim exemption or apply for a lower TDS deduction under Section 197.

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What is the Rate of TDS?

Under Section 194A of the Income Tax Act, TDS on interest (excluding interest on securities) is deducted at 10% if the total interest paid exceeds Rs. 40,000 in a financial year (Rs. 50,000 for senior citizens). However, if the recipient does not provide a PAN, TDS is deducted at 20%. For interest earned on fixed deposits, recurring deposits, and other non-securities interest sources, the same rate applies. Individuals eligible for lower or NIL TDS deduction can submit Form 15G/15H or obtain a certificate under Section 197. Banks and financial institutions deduct TDS at the applicable rate before crediting interest payments to the recipient’s account.

When should TDS be deducted under Section 194A?

Under Section 194A, tax deducted at source (TDS) should be deducted when interest payments are made to resident individuals. If the interest amount paid or credited in a financial year exceeds Rs. 40,000 (for banking companies, banks, and cooperative societies) or Rs. 5,000 (for other cases), the payer must deduct TDS. However, from FY 2018–19 onwards, no TDS is deducted on interest earned up to Rs. 50,000 by senior citizens. Recipients can submit Form 15G/15H or apply for a certificate under Section 197 to reduce or eliminate TDS.

When should TDS be deposited?

TDS should be deposited when interest payments to resident individuals exceed specified thresholds under Section 194A of the Income Tax Act. If the interest amount paid or credited in a financial year surpasses Rs. 40,000 for banking companies, banks, and cooperative societies, or Rs. 5,000 for other cases, the payer must deduct TDS. However, since FY 2018–19, no TDS is deducted on interest earned up to Rs. 50,000 by senior citizens.

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Are there any exemptions from TDS under Section 194A?

Exemptions from TDS (Tax Deducted at Source) under Section 194A of the Income Tax Act include:

Interest earned on savings accounts: TDS is not applicable to such interest.
Interest on income tax refunds: It's exempt from TDS under Section 194A.
Interest paid by partnership firms to partners: Exempt from TDS.
Interest paid to recognised financial entities (banks, LICs, UTIs, or insurance companies) does not attract TDS under this section.

These exemptions apply to specific scenarios, and it's crucial to understand the context of interest payments to determine whether TDS is applicable.

How can individuals prevent TDS deductions on interest income?

To prevent TDS (tax deducted at source) on interest income, individuals can consider the following strategies:

Submit Form 15G/15H: Declare eligibility by submitting Form 15G (below 60 years) or Form 15H (senior citizens) to the payer, stating income below the taxable limit to avoid TDS.
Split interest income: Distribute interest across multiple accounts to keep it below the TDS threshold (Rs. 40,000 or Rs. 50,000) and evade TDS.
Invest in tax-free bonds: Opt for government-issued tax-free bonds exempt from TDS on interest.
Choose tax-efficient investments: Consider PPF, NSC, or tax-saving fixed deposits for tax benefits and potential TDS exemption.
Timely withdrawals: Withdraw fixed deposits before interest accrues to avoid TDS deductions.

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How can taxpayers ensure compliance with Section 194A?

Section 194A of the Income Tax Act mandates TDS (Tax Deducted at Source) for interest payments exceeding specified thresholds. Here are key compliance points:

1. Applicability:

Applies to interest payments other than on securities for residents only.
Entities responsible for TDS include banking companies, banks, co-operative societies, and post offices for specified deposits.

2. Threshold limits:

TDS is triggered if interest paid exceeds Rs. 40,000 (banking companies) or Rs. 5,000 (others).
No TDS for senior citizens on interest up to Rs. 50,000 from FY 2018–19.

3. Nil or lower TDS rate:

Nil or lower rates are possible with Form 15G/15H, Form 15H submission (for senior citizens), or Form 13 application to the assessing officer.

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