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Did you know banks deduct some amount of money while they credit interest on fixed deposit every year? That is nothing but TDS under section 194A.
Read on to understand the implications of Section 194A of the Income Tax Act in detail.
What is Section 194A?
Section 194A of the Income Tax Act states that tax has to be deducted at source on interest (other than interest on securities). Such interest includes interest paid on an unsecured loan, interest paid by banks on fixed deposits, interest paid on loans & advances, etc.
This section is applicable only to resident individuals, i.e., section 194A doesn’t apply to the interest payments made to a non-resident.
When is TDS deducted under Section 194A?
The payer will deduct TDS under section 194A if the interest amount in a financial year exceeds –
- Rs 40,000 where the payer is a banking company, financial institution, or a co-operative society engaged in the banking or post office
- Rs 50,000 if interest is paid to senior citizens
- Rs 5,000 in any cases other than (1) and (2)
The recipient can provide Form 15/Form 15H to the payer so that TDS will not be deducted.
Who is responsible to deduct TDS?
- Individuals and Hindu Undivided Families (HUFs) who are liable to tax audit under section 44AB in the preceding financial year
- All other assessees like partnership firm, company, Association of Persons (AOP), and Body of Individuals (BOI)
What is the rate of TDS under section 194A?
Any person making eligible interest payments under section 194A will have to deduct 10% TDS while making the interest payment to a resident individual.
As a COVID-19 relief measure, the income tax department has reduced TDS rate under section 194A to 7.5% for the interest paid between 14th May 2020 and 31st March 2021.
If the individual does not furnish PAN, TDS will be deducted at the rate of 20%.
What is the time limit for depositing TDS?
The payer who has deducted TDS rate under section 194A will have to deposit TDS amount within the following due dates.
|For April to February||7th of the next month|
|For March||On or before 30th April|
Interest on late payment or non-payment of TDS
If TDS is not deducted, an interest of 1% per month will apply from the due date of deduction to actual date of deduction.
If TDS is not deposited on time, an interest of 1.5% per month will apply from the actual date of deduction to the actual date of payment.
What type of interests are exempted under section 194A?
- To any bank, financial institution, LIC India, any company or a co-operative society engaged in the insurance business
- By a partnership firm to its partners
- To members by a co-operative society
Interest that does not exceed
- Rs 40,000 where the payer is a banking company, any bank, banking institution, post office, co-operative society engaged in the business of banking
- Rs 5,000 in any other case and Rs 50,000 in case of senior citizens
Which TDS return has to be filed under Section 194A?
The payers who are required to deduct TDS have to file Form 26Q to report all the interest paid and tax deducted thereon.
Form 26Q is a quarterly statement filed by the deductors to report TDS on all payments other than salary. This form is used for TDS on professional fees, rent, interest payments, etc.
When is the due date of Form 26Q?
|April to June (Q1)||31st July of the same FY|
|July to September (Q2)||31st October of the same FY|
|October to December (Q3)||31st January of the same FY|
|January to March (Q4)||31st May of the next FY|
What are the penalties for late filing of Form 26Q?
|Particulars||Minimum Penalty||Maximum Penalty|
|Late filing of Form 26Q (Penalty under Section 234E)||Rs 200 per day until TDS return is filed||Penalty amount should not exceed the TDS amount|
|Non- filing of Form 26Q (Penalty under Section 271H)||Rs 10,000||Rs 1,00,000|
No penalty will be charged if
- The payer deposits TDS to the government
- Late filing fees and interest are paid
- Return is filed before completion of 1 year from the due date
Whether TDS is deducted on interest on delayed payment of purchase bills?
No TDS is deducted on interest on delayed payment of purchase bills under section 194A
When is tax deducted at nil rate or lower rate?
Case 1– When a deductee submits Form 15G/15H to the deductor along with their PAN, then no TDS will be deducted by the deductor. Form 15G/15H can be submitted only when the following conditions are satisfied.
- Deductee is a person other than a company or a partnership firm
- Tax liability of the particular FY is NIL
- Total income does not exceed the basic exemption limit under income tax. However, this condition is not applicable to resident senior citizens
Case 2 – When a deductee submits Form 13 under section 197 of the Income Tax Act to an assessing officer. The officer authorises a certificate for lower tax deduction (or deduct no tax)
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