What is Section 194 A of the Income Tax Act?

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Whether you are an amateur investor or an experienced one, you must be aware of the various Income Tax provisions and rules. This will help you be tax compliant and make informed investment choices. The income tax rules in India are defined by the Indian Income Tax Act, 1961.

In this write-up, we discuss Section 194 A of the IT Act.

What is Section 194 A?

Section 194A of the Income Tax Act states that individuals are liable to pay taxes on certain payments they receive from their investments, like interests. The tax is applicable on interest paid by the banks on fixed deposits, loans, and advances. It also includes interest paid on unsecured loans. Additionally, as per the IT Act, the TDS can be deducted under Section 194A only if the payment is made to a resident Indian.

The government of India mandates certain people to pay this tax.

Who is liable to pay TDS under Section 194 A?

The following entities must incur income tax deductions, i.e., pay T D S under Section 194 A

  • Income tax assesses such as partnership firm, Association Person, Body of Individuals, companies, etc.
  • Members of HUF (Hindu Undivided Families) and individuals who are liable for assessment under Section 44AB in the previous financial year.
  • An individual or HUF whose annual income is more than ₹1 crore in case of business owners and ₹50 lakhs for self-employed professionals in the financial year in which the interest is paid.

When is TDS deducted under Section 194A?

The payer shall deduct TDS if the interest paid exceeds Rs. 40,000 and it is likely to be paid in a financial year, where the payer is:

  • Cooperative society participating in credit lending business
  • Financial organisations that offer loans
  • Post office

Additionally, the tax deduction under Section 194A specific the following sources for interest income –

  • Bank deposits
  • Recurring and fixed deposit accounts
  • Post office deposits

What is the TDS Rate under Section 194A?

According to Section 194A of the Indian Income Tax Act, TDS is deductible at 10%. However, if the interest recipient does not have a PAN card, TDS shall be applied at 20%.

You must know that the maximum TDS deduction limit for banks is ₹10,000, and for other financial institutions, the limit is capped at ₹5000.

What is the deadline for depositing TDS deducted Section 194A?

Individuals must deposit TDS deducted between April and February before the 7th of the subsequent month. If the TDS is deducted in March, it must be deposited on or before 30th April.

How to deposit the TDS collected under Section 194A?

To deposit the TDS amount, you must log in to the official income tax website and fill in the relevant details. You must select the payment, i.e., TDS or TCS payable by the taxpayer. If your employer or organisation has deducted TDS, you must ask them to issue a TDS certificate. It is a vital document you may need while filing your ITR and getting a reimbursement.

Final Words

As a taxpayer, these are some basic information you must know about Section 194A of the Indian Income Tax Act. This helps you be tax compliant and avoid unwarranted penalties.

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