Section 194A of the Income Tax Act, 1961

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The Income Tax Department of India is the governing legal body to levy, administer, recover, and collect direct taxes in India. In other words, this department lays down various regulations and rules concerning the direct taxes in India. Therefore, the department lays the need for paying the income tax by corporate and individuals who are earning income.

What is Section 194A?

  • Section 194A deals closely with TDS deduction on the interest that is other than interest on the securities such as interest on the Fixed Deposits, interest on the Advances and Loans that are other than banks.
  • The payments that are made to the non-residents are as well covered under the mechanism of the TDS. However, in such cases tax is deducted under Section 195.
  • This section is applicable only for the residents. Therefore, section 194A’s provisions do not apply in the situation of payment of interest to non-residents.

When Do TDS U/S 194A Require to be Deducted?

The income taxpayer should deduct the TDS if the amount of interest that is paid or likely to be paid or credited or credited in the financial year, is more than:

Rs.40, 000, where the taxpayer is:

  • Co-operative society engaged in the banking business.
  • Any bank or banking company or any banking institution.
  • Post office (on deposit in the scheme that is notified and framed by the Central Government).
  • 5,000 in some other case.
  • From the Financial Year 2018 - 19 onwards there will not be any TDS deducted on the interest that a senior citizen earns up to Rs.50, 000. The amount of interest can be earned from any of the following:
    1. Deposits with post offices.
    2. Deposits with banks.
    3. Recurring deposit schemes.
    4. Fixed deposit schemes.

When is the Tax Deducted at Lower Rate or NIL Rate?

This situation occurs in the following scenarios:

When the Tax Declaration is Submitted through form 15H/ 15G Under Section 197A:

If the declaration of the income tax is submitted u/s 197A through the recipient to the taxpayer with his/her PAN, then no tax is deductible if the below conditions are met:

  • When the recipient is the person who is other than a firm or company.
  • When the total income does not exceed the limit of the exemption (i.e. for Assessment Year 2016 - 17, Rs.2, 50, 000 to Rs.3, 00, 000, or Rs.5, 00, 000 as per the relevance). This situation is not applicable if the recipient is a senior citizen resident.
  • When the tax on the previous year's total income is NIL.
  • These declarations must be provided in duplicate form 15G and it is 15H for the senior citizens. In the scenario of the Senior Citizens Savings Scheme (SCSS),2004,  the investors are allowed to submit the declaration.
  • Upon submission of declaration to the bank, the bank should not deduct the tax (subject to the conditions) upon interest payment.
  • The nominees of the investors of the Senior Citizens Savings Scheme can as well generate the declaration during the payment time after depositor’s death.

When Form 13 Under Section 197 of An Application is Submitted

  • As per Section 197, the recipient may apply under Form number 13 to the Accessing Officer to receive a certificate authorizing the taxpayer to deduct the tax at a lower rate (for no tax deduction, if some conditions are satisfied).
  • There is no specific limit of time for the application and that can be filed anytime before the actual tax deduction. If the recipient does not own PAN, he/she cannot apply for the certificate.
  • The certificate must be issued, directly to the individual who is responsible for paying the income, under the applicant's advice, and on a plan paper.
  • The certificate should not be issued with the retrospective effect.
  • The recipient can furnish such certificate's copied to the person who is responsible to pay the income for no/ lower deduction of taxes at source.

What Is the TDS Rate?

Below are the applicable tax rates:

  • 20% when PAN is not given.
  • 10% when PAN is provided.
  • No SHEC or education cess or surcharge is added to these rates. Therefore, the tax is deducted at the source at a very basic rate.

Define the Time Limit for TDS Deposit

  • The tax that is deducted from April to February should be deposited on or before next month's 7th. Tax deducted in March should be deposited on or before April 30th.
  • To understand this, let us take an example, the tax deducted on the April 25thshould be deposited on or before May 07th and the tax that is deducted on March 15th should be deposited on or before April 30th.