Understanding Section 194A of the Income Tax Act: TDS on Interest Income

Understanding Section 194A of the Income Tax Act: TDS on Interest Income

Section 194A of the Income Tax Act (ITA) is about TDS on interest earned from investments that are not securities. It is important for taxpayers to know about this section because it can impact their taxes and deductions.

What Does Section 194A Cover?

This section applies to interest income earned by resident individuals on various investments:

• Fixed deposits
• Recurring deposits
• Loans and advances (except to partners in a firm)

Who Deducts TDS under Section 194A?

•  Banks and financial institutions (FIs)
• Any person (except individuals and Hindu Undivided Families (HUFs)) making such interest payments

Exemptions:

• Interest paid by co-operative societies to members
• Interest paid to partners by a firm
• Interest paid to banks, insurance companies, and specific financial institutions

Threshold Limits and TDS Rates:

Higher TDS Rate for Missing PAN:

If you don't give your PAN details, the deductor will withhold tax at a higher rate of 20%..

TDS Deposit Timelines:

• April to February: Deposit by 7th of the following month.
• March: Deposit by 30th of April.

Claiming Exemptions:

• Senior citizens can claim an exemption up to ₹50,000 on interest income from certain sources.
• People can fill out Form 15G or 15H to avoid tax deductions if they meet certain criteria based on income.

Lower/Nil TDS with Form 15G/15H or Form 13:

• Form 15G/15H allows individuals to declare their estimated tax liability for the year and potentially avoid TDS if applicable.
• Form 13, submitted to the tax authorities, can authorize a lower TDS rate.

Key Points to Remember:

TDS is taken out when interest is added to your account or when you receive cash/cheque payments.

• TDS is deposited by the deductors, not directly by taxpayers.
• Understand the exemptions and how to claim them to minimize tax liability.

Learn about Section 194A to correctly deduct taxes on interest income and possibly qualify for exemptions or lower TDS rates. For complicated tax matters, seek advice from a tax advisor for personalized assistance.