There are different ways of collecting taxes (Self-assessment tax, Advance tax, etc.) which are calculated at the end of the year. But the Government of India found a loop into this system of collecting the tax. Many individual taxes were not collected by Government so this concept so TDS was introduced so that the payer will pay the tax on behalf of the payee. In this guide, we will cover the topic of TDS on Interest.
Section 194A deals with the provisions relating to TDS on interest other than on securities. Tax is to be deducted under section 194A if interest (other than interest on securities) is paid to a resident.
Every payer who is responsible for paying interest (interest other than on securities) to a resident, other than an individual or a HUF (Hindu undivided family), is liable to deduct tax at source under section 194A.
An individual or a HUF is liable to deduct TDS under section 194A if such individual or HUF was liable to get his/its accounts audited under section 44AB* in the preceding financial year.
*Section 44AB Income tax act require tax audit if gross receipts from business or profession exceed the prescribed limit.
The payer / deductor deduct TDS, but if the amount is deductible only if the amount of interest paid during the preceding year is more than Rs 10,000 in case of banks and Rs 5,000 in other cases.
But it’s not so simple to arrive at the TDS amount. Here below are some points to be considered while estimating TDS.
While calculating the interest paid the payer has to calculate the total amount paid to the payee. For example, If the interest payable in the month of June of the preceding year is Rs 2,000 then no TDS will be deducted. But if it’s in the month of September, and the cumulative amount is Rs 6,000 then the payee / deductee (other than the bank) would have to deduct TDS on Rs 6,000 @10% for September month.
While calculating TDS the banks have to consider all the total interest payment made. For example, he / she has a fixed deposit in all different branches of the same bank. So, while calculating the TDS the cumulative amount of interest paid is to be considered.
The deductor is required to pay TDS when the interest is accrued regardless of whether the same is paid or not if the deposit is for more than one year and the interest is compounded.
As per section 194A
Examples of TDS on Interest Covered
When a non-government deductor deducts tax from interest, the payment is to be made to the credit of Central Government by the due dates given below
If you want to know about how your TDS on interest (other than Interest on Securities) will be deducted or know more about TDS you can connect with our tax expert at H&R Block.