Section 194A covers TDS on interest other than interest on securities and it says any person other than Individual and HUF, responsible for paying to any person interest other than interest on securities will at the time of payment or credit whichever is earlier deduct tax @10%.
Individual and HUF are liable to deduct TDS if the total turnover/ receipts during the year exceeds the amount mentioned in clause (a) and (b) of section 44AB i.e. in case of business if it exceeds 1 crore and in case of profession if it exceeds Rs. 50 lakh. Earlier the section said that if Individual and HUF get their books of accounts audited then they need to deduct TDS from next year, however now if they exceed the turnover limit mentioned in clause (a) and (b) i.e. Rs. 1 crore and Rs. 50 lakh you need to deduct TDS and also if your turnover is below 1 crore and 50 lakh but you are getting your accounts audited under other clause of section 44AB then also you don’t need to deduct TDS.
The new limit for TDS in case of interest paid by bank were announced by Finance Act, 2018 for senior citizen effective from 01.04.2018 and by Finance act, 2019 for non-senior citizen effective from 01.04.2019.
|Payer||Payee||Limit for non deduction|
|Bank, co-operative society, Post office||Any person other than senior citizen||Rs. 40,000|
|Bank, co-operative society, Post office||Senior citizen||Rs. 50,000|
|Any person other than Bank, co-operative society, Post office||Any person||Rs. 5,000|
In case of a Banking company, Co-operative society and post office amount paid for interest on time-deposit, TDS shall be deducted only when amount of interest is credited or paid by the bank.
Also, this section shall not apply on interest paid to:
(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or
(b) any financial corporation established by or under a Central, State or Provincial Act, or
(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or
(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or
(e) any company or co-operative society carrying on the business of insurance, or
(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;
Thus the above list doesn’t contain NBFC thus any interest paid to NBFC would be liable to deduction of TDS under section 194A.
Further this section will not be applicable on following transaction:
- to such income credited or paid by a firm to a partner of the firm.
- to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society;
- to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;
- to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
- to such income credited or paid in respect of,—
(a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;
(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;
- to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);
- to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;
- to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;
- to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank;
- to any income by way of interest referred to in clause (23FC) of section 10 (Interest received by business trust from Special Purpose Vehicle).
Thus this are major amendments and points to remember with regard to TDS u/s 194A of the Income Tax Act.
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