Section 194A of the Income Tax Act of 1961 deals with the TDS on interest other than interest on securities. Section 194A of the Income Tax Act, 1961, is a section that deals with the taxation of interest earned by individuals or HUFs (Hindu Undivided Families) on deposits made in certain financial instruments such as savings accounts, fixed deposits, recurring deposits, etc.
What is Section 194A?
Under this section, the taxpayer is liable to pay tax on the interest earned from such deposits at the rate of 10% or 20%, as applicable. The tax deducted at source (TDS) is to be deposited to the credit of the central government by the payer.
TDS Rate for Section 194A
The TDS rate under Section 194A is 10% of the interest earned from the deposits made by individuals and HUFs. The tax is to be deducted at the source and deposited to the central government’s credit by the payer.
The TDS rate may be lower depending on the payee category, such as senior citizens, who may be eligible for lower TDS rates.
A Detailed Explanation of Section 194A
Section 194A of the Income Tax Act, 1961, is a section that deals with the taxation of interest earned by individuals or HUFs (Hindu Undivided Families) on deposits made in certain financial instruments such as savings accounts, fixed deposits, recurring deposits, etc. The section is applicable to both resident and non-resident individuals and HUFs.
Under this section, the taxpayer is liable to pay tax on the interest earned from such deposits at the rate of 10% or 20%, as applicable. The tax is to be deducted at source (TDS) and deposited to the credit of the central government by the payer. The TDS rate may be lower depending on the payee category, such as senior citizens, who may be eligible for lower TDS rates.
Who is Required to Deduct TDS?
The payer, which could be any financial institution, cooperative society, company, or other body or business establishment, is liable to deduct TDS under this section when they pay out interest on deposits. This is an important responsibility and should be taken seriously, as any failure to do so can lead to legal repercussions. For those who receive interest payments, ensuring that the payer has properly deducted TDS is also important, as it can significantly reduce their tax liability.
What Are the Financial Instruments Covered Under Section 194A?
The following financial instruments are covered under Section 194A:
- Savings Accounts
- Fixed Deposits
- Recurring Deposits
- Post Office Term Deposits
- Post Office Monthly Income Scheme
- Post Office Savings Bank Account
- Post Office Recurring Deposit
- Post Office Time Deposit
- National Savings Certificates
- Taxable Bonds
- Securities
- Mutual Funds
- Money Market Instruments
- Other Investment Instruments
The TDS rate of 10% or 20%, as applicable, is to be deducted from the interest earned on the above-mentioned financial instruments.
What Is the Exemption Limit Under Section 194A?
The exemption limit under Section 194A of the Income Tax Act, 1961, is Rs. 10,000. This means that if the interest earned from any deposit is less than Rs. 10,000 in a financial year, then no TDS (tax deducted at source) will be deducted from such interest. This provision helps to reduce the burden of tax on individuals who earn income from small deposits and investments.
What Is the Due Date for TDS Deduction?
The due date for TDS deduction, as prescribed under Section 194A of the Income Tax Act, 1961, is the seventh day of the month succeeding the month in which the interest is credited or paid, whichever is earlier.
For example, if the interest is credited or paid on March 31, 2021, then the TDS should be deducted on or before April 7, 2021. Individuals must ensure that the TDS is deducted and deposited within the due date prescribed by law to avoid any penalty or legal action.
What Are the Penalties for Violations of Section 194A?
Non-compliance with Section 194A of the Income Tax Act can lead to severe penalties. Section 271C of the Income Tax Act states that if a person fails to deduct tax at source as required by Section 194A, he must pay a penalty equal to the amount of tax he failed to deduct.
In case of non-compliance with the provisions of Section 194A, the assessee shall also be liable to pay simple interest at one and a half percent per month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually deducted.
Furthermore, if any person fails to pay to the credit of the Central Government the tax deducted at source within the prescribed time limit of 7 days from the end of the month in which the tax was deducted, he shall be liable to pay, by way of penalty, a sum equal to the amount of such tax.
The assessing officer may also impose a penalty of up to 100 percent of the amount of tax if he is satisfied that any default or failure to deduct or pay the tax at source has been made willfully and with an intention to evade tax.
Moreover, if any person issues any certificate for non-deduction or lower deduction of tax at source knowing that such certificate is false, he shall be liable to pay a penalty of one thousand rupees.
It is, therefore, important for taxpayers to ensure compliance with Section 194A of the Income Tax Act to avoid any penalties or prosecution.
FAQs on Section 194A
The following frequently asked questions will give you a better understanding of Section 194A.
What is Section 194A?
Section 194A of the Income Tax Act of 1961 contains a provision for the deduction of tax deduction at source (TDS) from interest income. It is applicable to any person (i.e., an individual, HUF, firm, company, etc.) who is responsible for paying any income by way of interest (other than income by way of interest on securities) to any other person.
What is the TDS rate for Section 194A?
The TDS rate under Section 194A is 10% of the interest income. There is no exemption limit, meaning that any person who is responsible for paying interest income to another person has to deduct TDS at 10%.
What is the due date for payment of TDS under Section 194A?
TDS under Section 194A has to be paid to the credit of the Central Government within 30 days from the end of the month in which it has been deducted.
What is the due date for filing a TDS return under Section 194A?
TDS returns under Section 194A have to be filed quarterly on or before the 30th of the month following the quarter in which TDS has been deducted.
Is TDS under Section 194A applicable to cooperative societies?
Yes, TDS under Section 194A is applicable to cooperative societies. The rate at which TDS has to be deducted is the same as applicable to other persons, i.e., 10%.
Section 194A of the Income Tax Act, 1961, is a section that deals with the taxation of interest earned by individuals or HUFs (Hindu Undivided Families) on deposits made in certain financial instruments such as savings accounts, fixed deposits, recurring deposits, etc. The payer is liable to deduct TDS from the interest earned on such deposits at 10% or 20%, as applicable. The due date for TDS deduction is the seventh day of the month succeeding the month in which the interest is credited or paid, whichever is earlier. If the taxpayer fails to deduct TDS as per the provisions of Section 194A, then the taxpayer will be liable to pay a penalty of Rs 100 per day of default, in addition to interest at the rate of 1% per month or part of the month.
