TDS to be deducted on interest payable like interest on fixed deposit, interest on unsecured loan. Interest on securities are not covered under this section but covered under Section 193.

1. Time of Deduction- TDS to be deducted at the time of payment or credit, whichever is earlier.
2. Deductor-
   • Individual and HUF who are liable to audit under audit under section 44AB, point (a) and (b) in the preceding year.
   • All other assessees i.e Partnership Firm, Company, AOP, BOI
3. Deductee- The payment of interest should be made to a resident. If payment is made to a non-resident, TDS shall be deducted under section 195.
4. Tax Rate- TDS at a flat rate of 10% shall be applicable over the threshold specified below.

If PAN is not furnished, then tax to be deducted at a higher rate.

5. Meaning of “Interest”:

“Interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.

6. Cases when TDS shall not be deducted-

• If the interest amount in a FY shall not exceed-
  • Rs 40,000 when payer is a banking co (on time deposit), co-operative society carrying out banking business, post office savings, co-operative society with >Rs. 50Cr turnover.
  • 5,000 in any other case.

In case of senior citizens, threshold of Rs. 50,000 shall apply instead of Rs. 40,000.

• If interest is paid to any banking co, cooperative society engaged in banking business, Central/State financial corp, LIC, UTI, insurance co or co-operative society.
• If interest is paid to a partner of the firm by the firm.
• Interest with respect to deposits held with primary agricultural credit society, co-operative land mortgage bank, co-operative land development bank.
• Income credited/paid by a co-operative society to a member or to any other co-operative society.
• Interest of savings account with banks or co-operative society.
• Interest paid with respect to certain schemes of Post Office, NSC, Kisan Vikas Patra etc.
• Interest credited or paid by Central Govt
• Chit dividend paid is not interest, hence no deduction needs to be made.
• Interest paid on delayed payment of purchase bills
• If Form 15G/15H submitted

∼Authored by – CA Anushka Saraogi∼

Section 194 – TDS on Dividend