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


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TDS on Interest
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.

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