Section: -194-A (TDS on Interest other than “Interest on securities”)

In the finance bill 2020 there has been widened the scope of TDS to be deducted u/s 194A for Co-operative societies & applicable from 01-04-2020 which explained as under:   

It is proposed that a co- operative society shall be liable to deduct TDS u/s 194A, if-

• the total sales, gross receipts or turnover of the co-operative society exceed Rs.50 crores during the financial year immediately preceding the financial year; and
• aggregate amount of such interest is more than Rs. 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case.

Summary of Section 194-A

• Deductor/ Payer: Any person (Including Individual/HUF if they are liable to audit u/s 44AB in the immediately preceding financial year)
• Deductee/ Payee: Resident person
• Nature of Payment: Interest other than interest on securities
• Threshold Limit: TDS is required to be deducted if aggregate of Interest paid or credited or likely to be paid or credited to the resident person in a financial year:
  • Exceeding Rs. 40,000/- where the payer is:
    • Banking company or any bank or a banking institution
    • Co-operative society engaged in carrying on the business of banking
    • Post office (On deposit under scheme framed by the Central Government and notified by it in this behalf)
  • Exceeding Rs. 5,000/-:
    • Any other case other than above
  • Exceeding Rs. 50,000/- where the payee is a senior citizen (“senior citizen” means an individual resident in India who is of the age of 60 years or more at any time during the relevant previous year;) & the payer is:
    • Banking company or any bank or a banking institution
    • Co-operative society engaged in carrying on the business of banking
    • Post office (On deposit under scheme framed by the Central Government and notified by it in this behalf)
• Rate of TDS:
  • If PAN is furnished, then TDS rate @ 10%
  • However, in case the PAN is not furnished, then Deductor would be liable to deduct TDS @ 20% i.e. at the maximum marginal rate.
  • No surcharge, education cess or SHEC shall be added to the above rates.
• Time of deduction:

Deductor is required to deduct TDS within earlier of the following dates:

• • 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

• Time Deposit: Time deposit means
  • Fixed deposit,
  • Recurring deposits
• If banking company or the co-operative society or the public company adopted core banking solutions system, then:

Computation of interest income for the purposes section 194A should be made by taking all branches interest.

• Point to be Noted 
  • TDS is required to be deducted on interest on Recurring deposits & Fixed deposits.
  • TDS is also required to be deducted in case interest on saving deposits w. e. f. 01-04-2019.
• No Liability to deduct TDS:
  • Interest credited or paid to: –
    • Any Bank
    • Co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)
    • Financial corporation
    • LIC (Life Insurance Corporation of India)
    • UTI (Unit Trust of India)
    • Any company or co-operative society carrying on the business of insurance
    • Any other institution, association, body which notify by the Central Government
  • Interest credited or paid by the partnership firm to its partners
  • Interest credited or paid by the co-operative society (other than a co-operative bank) to its members
  • Interest credited or paid by a co-operative society to any other co-operative society
  • Interest credited or paid on deposits by the Central Government (Deposit should be under any scheme framed by CG)
  • Interest paid/credited in respect of deposits with:
    • a primary agricultural credit society or
    • primary credit society or
    • co-operative land mortgage bank or
    • co-operative land development bank
  • Interest paid/credited in respect of deposits (other than time deposits made on or after 01-07-1995) with:
    • a co-operative society other than co-operative society or bank engaged in the business of banking.
  • Interest credited or paid by the Central Government under any provision of Direct tax. Example: Interest on Income tax refund etc.
  • Interest credited on compensation amount given by the Motor Accidents Claims Tribunal
  • Interest paid on the compensation amount given by the Motor Accidents Claims Tribunal if aggregate of the amounts in the financial year does not exceed Rs. 50,000/-. Threshold limit of Rs. 50,000 is applicable separately where interest is to be shared by 2 or more claimants.
  • Interest credited or paid by an infrastructure capital company/fund or a public sector company or scheduled bank on Zero coupon bond
  • Interest referred to in section (23FC)10.
  • Interest credited or paid to non-resident because this case covered u/s 195 of the Income Tax Act
  • If payer or deductor is Individual/HUF and they are not labile to audit u/s 44AB.