Section 194A

What Is Income Tax Section 194A

According to Section 194 A, an individual is required to pay tax on interest sources. This includes interest paid by banks on fixed deposits, advances, and loans. It also includes interest payments made on unsecured loan forms.

Interest in securities, on the other hand, is not covered by this section. Furthermore, Section 194A deducts TDS only when a payment is made to a resident.

For a thorough understanding, it is critical to review the act’s terms and conditions. Certain people are required by the government to pay this tax.

194A’s Fundamental Provisions


These bullet points highlight the key provisions of Section 194A –


Entities that pay interest to resident individuals, in addition to HUF and individuals, are required to deduct TDS. If HUF or individuals have their accounts audited under the clauses of 44AB, they must deduct TDS on interest payout. It should be noted that Section 194A of the Income Tax Act does not apply to interest payouts made to NRIs. TDS deductions for non-resident Indians are governed by Section 195.

It is important to remember that an individual or a HUF must deduct TDS if their gross receipts or business turnover in the preceding year exceed Rs. 1 crore (business) or Rs. 50 lakh (profession). Entities must learn more about the circumstances of TDS deductions as well as the exemptions in order to streamline the process of paying 194A TDS.

Who is in charge of deducting TDS? 

Individuals and Hindu Undivided Families (HUFs) who were subject to a tax audit under section 44AB in the previous fiscal yearAll other assessees such as partnership firms, companies, Associations of Persons (AOP), and Bodies of Individuals (BOI)

When Does Section 194A Tax Deduction Apply?


TDS must be deducted by a tax deductor or payer if the amount of interest paid or credited is likely to be credited in a fiscal year.

Where the payer is, the amount will exceed 40,000.

Cooperative society that engages in credit lendingLending institutionsPost office (when the Central Government notifies to pay the deposit).

From FY 2018-19, no TDS is deducted from interest earned up to $50,000 under 194A for senior citizens.

Furthermore, the Section 194A tax deduction specifies the following sources of interest income –

Bank depositsRecurring deposit schemesPost office depositsFixed deposit schemes

Section 194A exempts what types of interests?


     Interest has been paid

     To any bank, financial institution, LIC India, or insurance company or co-operative society

     To its partners by a partnership firm

     A cooperative society’s members

     Interest that is not greater than

     Rs 40,000 if the payer is a banking company, any bank, banking institution, post office, or co-operative society engaged in the banking business.

     In any other case, Rs 5,000 and Rs 50,000 in the case of senior citizens

TDS is deducted in accordance with Section 194A.


Section 194A requires the following individuals to deduct TDS from interest payments:


Individuals or Hindu Undivided Families are not included (HUFs). This category includes banks, cooperative societies, post offices, and so on. This category may also include individuals or HUFs whose total sales, gross receipts, and turnover from their business or profession during the previous fiscal year exceeded the monetary limits specified in Section 44AB (financial year preceding the year in which the income is credited to the deductee).

In what circumstances must TDS be deducted under Section 194A?


TDS must be deducted where the amount of interest paid or credited to the payer/deductor, or likely to be paid or credited, exceeds INR 40,000 and the payer is:

     A banking institution or a banking company. A cooperative society engaged in the banking business. A post office (under a central government-framed and notified scheme).

     Partnership firms are not subject to the provisions of Section 194 A regarding the interest they pay or credit to their partners. As a result, the firm in this case is exempt from deducting taxes from interest payments to partners.

Other situations in which tax cannot be deducted include:


Interest paid to any bank or cooperative that operates as a bank, including a cooperative land mortgage bank that is subject to the Banking Regulation Act of 1949. Any financial corporation established by the federal, state, or provincial governments receives all interest payments. A payment of interest to the Life Insurance Corporation of India under the Life Insurance Corporation Act of 1956. Interest is paid to a Unit Trust of India established under the Unit Trust of India Act of 1963. The interest paid to any company or co-operative society engaged in the insurance business. Interest is payable on or before 31 March 2021 to any other institution, association, or body or class of institutions, associations, or bodies notified by the Central Government.



 A cooperative society’s interest paid or credited to its members (other than a cooperative bank) or to any other cooperative society. The rate of interest that the Central Government credits or pays on deposit notifications. Deposits held at primary agricultural credit societies, primary credit societies, cooperative land mortgage banks, or cooperative land development banks are credited or paid interest. The Central Government credits or pays interest under any provision of the ITA or the Wealth-Tax Act of 1957. A zero-coupon bond issued on or after June 1, 2005, with a coupon rate paid or payable by an infrastructure capital company, infrastructure capital fund, infrastructure debt fund, public sector company, or scheduled bank. According to ITA Section 10(23FC), special purpose vehicle interest is paid to a business trust.