Information On 194A

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What is Section 194A?

Section 194A of the Income Tax Act outlines the provisions of TDS deduction on interest payable, such as interest on loan and interest on fixed deposits. Section 194A is only applicable to residents of India; therefore, the provisions outlined in 194A are not applicable in the case of interest payment to a non-Indian resident as this is deducted according to Section 195.

When is Section 194A TDS Deducted?

As per Section 194A TDS is deducted in the following scenarios:

  • Interest paid on loan availed by relative or friend
  • Interest paid on unsecured loan
  • Interest paid by bank on fixed deposit

Section 194A TDS Deduction Rate

The TDS deducted as per Section 194 A is at 10%. If in case the recipient of the income fails to furnish their PAN card details to the deductor, the TDS rate to be deducted as per 194A of Income Tax states would be 20%. Additionally, there would be no surcharge or education cess added to the basic rates of deduction. Below is a table that outlines the Section 194A TDS rates:

Non-Banks10% (if PAN details are provided by the income recipient) Rs. 5,000
Non-Banks20% (if PAN details are not provided by the income recipient) Rs. 10,000
Banks10% (if PAN is provided) Rs. 10,000
Banks20% (if PAN is not provided) Rs. 10,000

Let’s suppose that a bank pays Rs. 20,000 as interest on FD to a customer. As the amount of interest is above the threshold of Rs.10,000 the bank is liable to deduct TDS of 10% on the entire interest amount of Rs. 20,000.

Time Limit for Submitting TDS under Section 194A

TDS deducted during the financial year of April to February must be deposited on or before the 7th of the following month. Additionally, tax deducted in March must be deposited on or before 30th April.

For example, tax deducted on 20th April must be deposited on or before 7th May. On the other hand, tax deducted on 15th March must be deposited on or before 30th April.

Penalty for Non-Deduction of TDS as per Section 194A

If there is a delay or non-deduction of TDS, an interest rate of 1% per month or a part of the amount, from the date on which it was to be deducted, til the date on which it is deducted must be paid.

Additionally, the party responsible for paying TDS and has failed to comply will be deemed as a defaulter, and will be liable to pay a penalty of up to 100% of the TDS not paid. Additionally, there can be imprisonment of up to 7 years for willful defaulters.

Exceptions to TDS under Section 194A

There are a few exceptions to filing TDS under Section 194A, which are as follows:

  • In case the dividend paid is via account payee cheque and the amount is Rs. 2,500 or under.
  • The dividend is covered under Section 115-O.
  • You have submitted For 15G/15H as your income is under the tax bracket.
  • The dividend has been paid to LIC, GIG, any of its subsidiaries, or to any other insurer.
  • The total amount of interest paid or to be paid on deposits over the course of the financial year does not exceed Rs. 10,000 (when paid by bank, post office, or co-operative society). These deposits include recurring, fixed and time deposits.
  • Interest income paid by a partnership firm to its partner.
  • Interest income paid to bank company, financial corporation, co-operative society, UTI, LIC, cooperative society or company that is involved in the insurance business.
  • Income not exceeding Rs. 50,000 when paid by Motor Accidents Claim Tribunal during a financial year.

The 2018 Budget introduced Section 80TTB which provides deduction in interest income on deposits with post office and banks to senior citizens, up to Rs. 50,000. Therefore, the TDS deduction as per Section 194A on this interest income must not be deducted up to Rs. 50,000.

FAQs on Section 194A

Is TDS u/s 194A deductible on interest of delayed receipt of land?
Yes, interest received as payment for delayed receipt of compensation on land acquisition is liable to Section 194A TDS.
Is interest on delayed payment of purchase bills TDS deductible u/s 194A?
Payment which has direct link and immediate nexus with trading liability will not fall within category of interest; while paying interest on delayed payment of purchase bills, no TDS obligation arises.
Is TDS u/s 194A deductible on interest reimbursement?
No; this is because reimbursement of interest by subsidiary to parent company which had repaid the same to the lender bank had no involvement of any element of income. Therefore, there would be no liability of TDS as per Section 194A.

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