Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194A of the Income-tax Act governs TDS on interest other than on securities.
This guide sets out the TDS rate under Section 194A, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194A?
Section 194A covers TDS on interest such as fixed deposit interest paid by banks, and interest on loans.
Rate, threshold and who deducts
| Nature of payment | Interest other than on securities |
|---|---|
| TDS rate | 10% (20% without PAN) |
| Threshold | ₹40,000 from banks (₹50,000 for senior citizens); ₹5,000 for others |
| Who deducts (deductor) | Bank, company, or other payer |
| Whose income (deductee) | Depositor / lender |
| Time of deduction | At credit or payment, whichever is earlier |
Key points
- Submit Form 15G/15H to avoid TDS if your income is below the taxable limit.
- Savings account interest is not covered by 194A.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on interest other than on securities at credit or payment, whichever is earlier.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194A appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Is FD interest subject to TDS?
Yes, if the interest crosses the threshold. You can still claim the deducted TDS as credit in your ITR.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.