Section 194A of the Income Tax Act (IT Act) covers tax deducted at source (TDS) on the interests accrued on fixed deposits and other financial instruments, except securities. Interest payments made to non-residents are not under the purview of this section.
Main features of Section 194A
The main features of Section 194A are:
· Any resident Indian receiving interest (except interest on securities) must pay TDS.
· If a Hindu Undivided Family (HUF) or an individual is liable for audits of his/her accounts, then TDS must be deducted on interest earned.
– TDS is deducted when the amount of interest earned is more than Rs 40,000 annually.
Income through interests is through one of the following sources:
· Fixed deposit schemes
· Bank deposits
· Post office deposits
· Recurring deposits
Rate of TDS
· 10% of the interest earned if PAN details are provided
· 20% of the interests earned if the PAN details are not given
There are no surcharges or education cess on these rates.
TDS is deducted at lower or NIL rate under:
-If the recipient submits a declaration in Form 15G or 15H u/s or 197A to the payer along with PAN details, then no tax is deducted. This provision is not valid if
1. The recipient is a firm or a company
2. There was a tax paid on the total income for the previous financial year
3. The recipient’s total income is more than the exemption limit.
– If an application is submitted by the recipient through Form 13 under section 197 along with the PAN details to the assessing officer to authorise the payer to deduct TDS at a lower rate. This application does not have any deadline, it can be filed any time before the tax is deducted.
The assessing officer issues the certificate directly to the recipient. During TDS deduction, the recipient must show this certificate to the payer for a lower or NIL deduction of tax.
The time limit for depositing TDS
If the tax is deducted on interest payments between the months of April and February, then it has to be deposited before the 7th of the following month. For TDS deducted on interest payments in the month of March, the tax has to be deposited either on or before the 30th of April.
