TDS on Interest other than Interest on Securities- section 194I of the Income Tax Act, 1961

This section deals with the scheme of deduction of tax at source from interest other than interest on securities.

Applicability of Section 194A – TDS on Interest other than “Interest on securities”

Any person who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities shall deduct income-tax thereon at the rates in force.

An individual or a HUF (Hindu undivided family) shall not be required to deduct TDS under this section.

However, an individual or HUF shall deduct TDS if his total sales, gross receipts, or turnover from the business or profession carried on by him exceed

  • Rs. 1 Crore in case of business or
  • Rs 50 lakh in case of the profession

during the financial year immediately preceding the financial year in which such interest is credited or paid.

Rate of TDS on Interest other than Interest on Securities Under Section 194A

The rate at which tax is to be deducted is 10% both in the case of resident non-corporate assessees and domestic companies.

Time of Deduction

The TDS shall be deducted at the earlier of the following

  • At the time of credit of such income to the account of the payee OR
  • At the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.

Note: Where any income by way of interest is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

TDS on Interest Limit

(1.) Where the amount of such income or the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year does not exceed

Payer of Interest Threshold Limit
  • Banking company
  • co-operative society engaged in carrying on the business of banking
  • Post office
Rs 40,000

(Rs 50,000 if the payee is a senior citizen)

In any other case Rs 5,000

Note: The aforesaid limit shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company in case of-

  • time deposits with a banking company
  • time deposits with a co-operative society carrying on the business of banking and
  • deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for the construction or purchase of houses in India for residential purposes and which is eligible for deduction under section 36(1)(viii)

No TDS will be deducted under Section 19A in the following cases

(1.) To such income credited or paid to

  • any banking company, or any co-operative society engaged in carrying on the business of banking (including a co-operative      land mortgage bank)
  • any financial corporation established by or under a Central, State or Provincial Act, or
  • the Life Insurance Corporation of India
  • the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or
  • any company or co-operative society carrying on the business of insurance, or
  • such other institution, association or body or class of institutions, associations or bodies which the Central Government may notify *

* (National Skill Development Fund and Housing and Urban Development Corporation Ltd. (HUDCO), New Delhi have been notified by the Central Government for this purpose)

(2.) To such income credited or paid by a firm to a partner of the firm

(3.) to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society (Refer Note below)

(4.) Interest paid or credited in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf

(5.) To such income credited or paid in respect of deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank (Refer Note below)

(6.) To such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act 1961

(7.) To such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal

(8.) To such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed Rs 50000.

(9.) To such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or infrastructure debt fund or a public sector company or scheduled bank in relation to a zero-coupon bond issued on or after the 1st day of June, 2005

(10.) To income by way of interest paid by special purpose vehicle to business trust under section 10(23FC)

Note:

A co-operative society shall be liable to deduct income tax in accordance with the provisions of sub-section (1), if—

(a)  the total sales, gross receipts, or turnover of the co-operative society exceeds Rs 50 crore rupees during the financial year immediately preceding the financial year in which the interest is credited or paid and

(b)  the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than Rs 50000 in case of the payee being a senior citizen and Rs. 40,000 in any other case.

Compliance after TDS Deduction

(1.) Deposit of TDS – Due date:

The TDS deducted shall be deposited into the government account within 7 days from the end of the month in which the TDS was deducted.

(2.) Submission of TDS Returns:

For TDS on Salary, Form 24Q is used and for TDS from all payments other than Salaries Form 26Q is used.

The deductor of TDS is also required to submit the TDS return on a quarterly basis. The due date of TDS return is as follows: –

Quarter Relevant Period Due Date of TDS Return
Quarter -I 1st April to 30th June 31st July
Quarter -II 1st July to 30th September 31st October
Quarter -III 1st October to 31st December 31st January
Quarter -IV 1st January to 31st March 31st May

 

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