BAJAJ BROKING
July 07, 2025
4 mins read
Section 194A of the Income Tax Act governs TDS on interest income other than interest on securities. It applies to interest paid by banks, financial institutions, and other notified entities. Knowing how Section 194A Income Tax Act works helps you understand exemptions and plan your income tax return filing better.
Section 194A Income Tax Act requires certain entities to deduct TDS on interest payments (excluding interest on securities) made to resident individuals and HUFs. The provision applies to interest payments made by banks, co-operative societies, post offices, NBFCs, and other notified institutions to resident individuals and HUFs.
This section covers interest payments on the following:
Interest on fixed deposits
Interest on recurring deposits
Interest on unsecured loans
Interest on advances
However, interest paid by partnership firms to their partners and TDS on interest paid to non-residents are excluded from Section 194A. As per the provisions of Section 194A, if your interest income exceeds the specified limit, TDS is deducted at 10%, provided your PAN is submitted. Without PAN, the TDS rate increases to 20%.
You can avoid or reduce TDS (Tax Deducted at Source) on interest income under Section 194A of the Income Tax Act by submitting the correct declarations, provided your total income is below the taxable limit. Here’s a guide to the correct declaration forms:
Form 15G – for individuals below 60 years of age.
Form 15H – for senior citizens (60 years or older).
Additionally, if your income is taxable but you are eligible for a lower rate of TDS, you may apply for a certificate under Section 197 by submitting Form 13 to the Income Tax Department.
Now that you know what is Section 194A, let’s review the applicable TDS deduction thresholds on interest income:
Nature of interest | TDS threshold (applicable from 1st April 2025) | Previous TDS thresholds under Section 194A |
For regular citizens | ₹50,000 | ₹40,000 |
For senior citizens | ₹1,00,000 | ₹50,000 |
General threshold | ₹10,000 | ₹5,000 |
As per Section 194A Income Tax Act, TDS has to be deducted on interest payments made to resident individuals, HUFs, or senior citizens by banks, co-operative societies, and post offices when interest exceeds ₹50,000 in a year. For senior citizens, the limit is ₹1,00,000. For other payers, the limit is ₹10,000. TDS limits apply to interest on deposits and loans. These rates are effective from 1st April 2025. You can avoid TDS if you submit the correct declaration form (Form 15G/15H) or obtain a certificate for lower deduction.
TDS under Section 194A Income Tax Act is deducted at different rates based on whether PAN is furnished and who the payer is. Here's a quick breakdown as applicable from FY 2025–26:
Payer Type | TDS Rate | Threshold for Deduction |
Bank/Post Office (PAN submitted) | 10% | ₹50,000 (₹1,00,000 for senior citizens) |
Bank/Post Office (No PAN submitted) | 20% | ₹50,000 (₹1,00,000 for senior citizens) |
Payer is others (with PAN) | 10% | ₹10,000 |
Payer is others (without PAN) | 20% | ₹10,000 |
TDS applies if interest paid or credited during the financial year exceeds these updated limits.
TDS under Section 194A has to be deducted when the interest amount gets credited to the payee's account or paid, whichever comes first. This includes payments through cash, cheque, draft, or online transfer.
Banks, co-operative societies, NBFCs, and other deductors are responsible for applying TDS once the interest crosses the prescribed limit. Even if interest is only credited and not yet paid, the TDS obligation still applies from that point onward.
If TDS is deducted under Section 194A, it has to be deposited by specific deadlines. For deductions made between April and February, the due date is the 7th of the following month. For TDS that has been deducted in March, 30th of April is the due date.
For example, let’s say a bank pays you ₹55,000 as interest on a fixed deposit in May 2025. Since this amount exceeds the new ₹50,000 threshold, the bank will deduct TDS at 10% if your PAN is available. The tax deducted must be deposited by the 7th of June with the government.
If TDS is not deposited on time, the payer may face penalties, including interest charges. The deductor must also file TDS returns within the prescribed timeline, failing which penalties under the Income Tax Act may apply.
For taxpayers, keeping track of these deductions helps during income tax return filing. You can verify all TDS details using Form 26AS before submitting your return. This ensures you get the correct tax rebate, especially if you’re eligible for a refund due to excess TDS deduction.
Understanding what is Section 194A and its applicability helps you understand the various exceptions as well. Some interest payments are exempt from TDS under Section 194A Income Tax Act. These exemptions reduce your tax burden and make your income tax return filing simpler. Here's a list of the common scenarios where TDS is not applicable:
Interest earned on savings accounts does not attract TDS. This applies to interest credited to regular and joint savings accounts.
Interest on income tax refunds received from the Income Tax Department is exempt from TDS under Section 194A.
Interest paid by partnership firms to their partners is also exempt. The logic is that partners and the firm are not treated as separate taxable entities for this purpose.
Interest paid to recognised financial entities like scheduled banks, co-operative banks, LIC, Unit Trust of India (UTI), and insurance companies is exempt under this section. These entities enjoy special status under the law.
To claim these exemptions correctly, keep your documents updated and PAN linked. If you are part of a HUF, ensure the interest is routed through the HUF account to possibly benefit from applicable exemptions. Knowing these provisions under Section 194A Income Tax Act helps you avoid unnecessary tax deductions and manage your income more efficiently.
You could avoid TDS under Section 194A by using some of these smart strategies:
Submit Form 15G or 15H if your total income is below the taxable limit.
Split your deposits across banks or branches to keep each interest amount under ₹50,000 or ₹1,00,000.
Invest in tax-free bonds issued by government-backed entities.
Choose tax-saving schemes like PPF or NSC, which qualify for tax exemptions.
Withdraw early from fixed deposits before interest crosses the threshold.
These methods may help reduce deductions and assist in planning your income tax return filing better.
Section 194A applies to interest payments (other than interest on securities), made to resident individuals or HUFs. Section 194A does not apply to non-residents. This section covers payments made by banks, co-operative societies, and post offices for investments made by the individual/HUF.
You may be eligible for a lower or nil TDS rate on your interest income if you submit Form 15G (if you are below 60) or Form 15H (if you are a senior citizen), declaring your income is below the taxable limit. Alternatively, you can apply to the Income Tax Department for a certificate under Section 197, which authorises a lower TDS rate. This certificate, issued by the assessing officer, must be submitted to the interest-paying institution to ensure reduced or no TDS deduction.
Understanding Section 194A Income Tax Act helps you manage TDS on interest income better. Whether you’re earning from bank deposits, loans, or recurring deposits, knowing when TDS applies allows for smoother compliance. You can avoid TDS by submitting Forms 15G/15H or applying for a certificate under Section 197.
Make sure you track thresholds based on the type of institution paying the interest. This is especially helpful if you are part of a HUF or a senior citizen, as it ensures accurate income tax return filing and eligibility for tax rebate wherever applicable.
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It includes interest on fixed deposits, recurring deposits, loans, and similar non-security-based sources. It excludes interest from bonds, debentures, or government securities.
Banks, financial institutions, co-operative societies, and post offices are responsible for deducting TDS if they pay interest exceeding the specified thresholds to resident individuals or HUFs.
The TDS deduction limit is ₹50,000 for general taxpayers, ₹1,00,000 for senior citizens, and ₹10,000 for other financial institutions. The payer deducts TDS only if interest exceeds these thresholds.
They can submit Form 15H to declare that their total income is below the exemption limit. If accepted, no TDS will be deducted from interest earnings up to ₹1,00,000.
Use Form 13 to apply for a certificate from the Income Tax Officer under Section 197. This certificate allows the payer to deduct tax at a lower or nil rate.
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