How to Handle TDS Under Section 194A for Interest Income and Correctly Report It in Your Tax Filing?

Section 194A of the Income Tax Act mandates the deduction of Tax Deducted at Source (TDS) on interest income, excluding interest on securities. This provision applies to interest income earned from a variety of sources like fixed deposits, recurring deposits, and loans from banks, co-operative societies, and post offices. TDS under Section 194A ensures that tax is deducted at the source of income, thereby promoting tax compliance and reducing the possibility of tax evasion. If you receive interest from these sources, it's essential to understand how TDS works, when it applies, and how to correctly report it in your income tax return (ITR).

---

Table of Contents

• How to Handle TDS Under Section 194A for Interest Income and Correctly Report It in Your Tax Filing?

• What is Section 194A?

• TDS Applicability and Thresholds for FY 2025-26

• Who Deducts TDS and When?

• TDS Rates Under Section 194A

• Exemptions and Lower Deduction

• How to Report TDS on Interest Income in Your Tax Return

• Common Mistakes to Avoid

• Conclusion

• FAQs

---

How to Handle TDS Under Section 194A for Interest Income and Correctly Report It in Your Tax Filing?

To handle TDS under Section 194A for interest income, ensure that TDS is deducted by the payer when your interest exceeds the prescribed threshold, ₹50,000 for general taxpayers and ₹1,00,000 for senior citizens on interest from banks, co-operative societies, and post offices. Report the total interest income under "Income from Other Sources" in your ITR, not just the net amount after TDS. Claim the TDS credit in the TDS schedule of your return using Form 16A or Form 26AS. If no TDS is deducted due to exemptions, like submitting Form 15G/15H, still report the interest income as taxable. Always verify the TDS details to avoid discrepancies and ensure accurate reporting.

What is Section 194A?

Section 194A of the Income Tax Act focuses on TDS deductions for interest income other than interest earned on securities. The provision ensures that individuals or entities paying interest to residents (except for individuals/HUFs who are not subject to a tax audit) with taxable income above a specified threshold must deduct TDS at the prescribed rates. This section applies to several types of interest income, including that earned from fixed deposits, recurring deposits, and savings accounts in banks or post offices. The goal is to ensure that tax is collected at the source, making the tax collection process more efficient and preventing the underreporting of interest income.

TDS Applicability and Thresholds for FY 2025-26

TDS under Section 194A applies to interest paid or credited by banks, co-operative societies, post offices, companies, and Non-Banking Financial Companies (NBFCs), provided the interest exceeds the prescribed limits. The thresholds for TDS deduction for the financial year 2025-26 are as follows:

1. For Banks, Co-operative Societies, Post Offices:

   1. ₹50,000 for general taxpayers.

   2. ₹1,00,000 for senior citizens (aged 60 and above).

      
      

2. For Other Entities (e.g., Companies, NBFCs):

   1. ₹10,000 for taxpayers of all categories.

   
   

It’s important to note that interest on savings accounts is not subject to TDS under Section 194A. However, it remains taxable, and individuals can claim a deduction under Section 80TTA (up to ₹10,000 per annum) for interest earned on savings accounts.

Who Deducts TDS and When?

TDS under Section 194A is deducted by the payer of the interest, which typically includes:

1. Banks, Co-operative Societies, and Post Offices: These institutions will deduct TDS when the total interest paid or credited to the account exceeds the prescribed limit for the year.

   
   

2. Other Entities (Companies, NBFCs, etc.): These organizations must deduct TDS when the interest paid or credited exceeds ₹10,000.

   
   

The deduction is made at the time the interest is credited to the account or when it is paid, whichever comes first. In the case of individuals and Hindu Undivided Families (HUFs), TDS is only applicable if they were subject to a tax audit in the previous financial year.

TDS Rates Under Section 194A

The TDS rates for interest income under Section 194A are as follows:

1. Standard Rate: 10% when the recipient provides their PAN details.

2. Higher Rate: 20% if the recipient does not provide a PAN.

It’s important to note that there is no additional surcharge or cess on these TDS rates. Therefore, individuals earning interest income must ensure their PAN is linked to their accounts to avoid higher TDS rates. Failure to do so will result in a higher deduction.

Exemptions and Lower Deduction

There are several provisions under Section 194A that allow taxpayers to either avoid or reduce TDS on their interest income:

1. Form 15G/15H:

   If your total income is below the taxable threshold, you can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to the payer. These forms certify that your total income is below the taxable limit, and TDS should not be deducted.

   
   

2. Lower or Nil Deduction Certificate:

   If you expect a lower or nil TDS deduction due to exemptions or reduced income, you can apply to the Assessing Officer for a lower or nil deduction certificate. Upon approval, the TDS rate will be adjusted accordingly.

   
   

3. Exempt Entities:

   Certain entities, like the LIC, UTI, government bodies, and mutual funds, are exempt from TDS under Section 194A for interest paid on investments made by them.

   
   

How to Report TDS on Interest Income in Your Tax Return

When you file your Income Tax Return (ITR), it is essential to report the interest income and TDS deducted correctly:

1. Collect TDS Certificates (Form 16A):

   Obtain Form 16A from all the entities that deducted TDS on your interest income. These certificates will show the amount of TDS deducted.

   
   

2. Check Form 26AS:

   Form 26AS is a consolidated tax statement that reflects all the TDS deducted on your behalf. You should verify that all TDS credits are accurately reflected in this form.

   
   

3. Report Gross Interest Income:

   Report the total interest income under the section ‘Income from Other Sources’ in your ITR, even if TDS was deducted. Don’t report just the net amount after TDS.

   
   

4. Claim TDS Credit:

   In the TDS schedule of your ITR, enter the TDS details as per the Form 16A or Form 26AS to claim the credit for the tax already deducted. This will reduce your overall tax liability.

   
   

5. Adjust for Exemptions:

   If you submitted Form 15G/15H and no TDS was deducted, ensure that you still report the interest income as taxable and claim the appropriate deductions under Section 80TTA if applicable.

   
   

Common Mistakes to Avoid

While handling TDS and reporting interest income, here are some common mistakes to avoid:

1. Not Reporting All Interest Income: Even if TDS is not deducted (due to exemptions like Form 15G/15H), the interest is still taxable and must be reported.

   
   

2. Mismatch in TDS Details: Always cross-check the TDS deducted with the Form 26AS and your TDS certificates to avoid discrepancies. Mismatches can lead to delays or errors in your tax filing.

   
   

3. Assuming All Interest is Exempt: Only certain types of interest, such as savings account interest under Section 80TTA, are exempt up to a limit of ₹10,000. Ensure you are claiming all applicable deductions and exemptions correctly.

   
   

4. Ignoring TDS Deduction on Loans: If you receive interest on loans from certain organizations and the TDS exceeds the threshold, ensure that this is reported accurately in your ITR.

   
   

By avoiding these common mistakes and ensuring correct reporting, you can streamline your tax filing process and avoid penalties for non-compliance.

Conclusion

Handling TDS under Section 194A is essential for accurate tax compliance, particularly for individuals earning interest income from fixed deposits, recurring deposits, and savings accounts. By understanding the TDS thresholds, rates, exemptions, and the process of reporting TDS in your tax return, you can ensure that your interest income is correctly accounted for, and you avoid any penalties. It is crucial to keep track of the TDS certificates (Form 16A), verify the details in Form 26AS, and report your gross interest income in your ITR. If you need assistance with TDS tracking and tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

1. What is the TDS threshold for senior citizens under Section 194A for FY 2025-26?

   Senior citizens (aged 60 and above) have a higher TDS threshold of ₹1,00,000 on interest income from banks, co-operative societies, and post offices for FY 2025-26. This means that TDS will only be deducted if the interest income exceeds ₹1,00,000. This higher threshold provides more tax relief for senior citizens, ensuring that their interest income is not taxed at source unless it exceeds the specified limit.

   
   

2. Can I avoid TDS deduction if my total income is below the taxable limit?

   Yes, if your total income is below the taxable limit, you can avoid TDS by submitting Form 15G (for non-senior citizens) or Form 15H (for senior citizens). These forms serve as a declaration that your total income is below the taxable threshold, and thus, you request the payer not to deduct TDS. It is important to ensure that the income indeed falls below the taxable limit, as providing false information can lead to penalties.

   
   

3. How do I claim TDS deducted on interest income in my ITR?

   To claim the TDS deducted on your interest income, report the total interest earned under the section ‘Income from Other Sources’ in your ITR, not just the amount received after TDS. Additionally, you must enter the TDS details in the TDS schedule of your return based on Form 16A or Form 26AS. These forms show the TDS deducted by the payer and ensure you get credit for the tax already paid on your behalf.

   
   

4. Is TDS applicable on savings account interest?

   No, TDS is not applicable on interest earned from savings accounts under Section 194A. However, the interest earned is still taxable and must be reported in your income tax return. You can claim a deduction of up to ₹10,000 under Section 80TTA for interest income from savings accounts, which can reduce your overall taxable income.

   
   

5. How can TaxBuddy help with TDS and tax filing?

   TaxBuddy’s mobile app makes managing TDS and tax filing simpler by automating TDS tracking, providing reminders for submitting forms like Form 15G/15H, and ensuring accurate reporting of TDS in your tax return. The app helps users stay on top of their tax obligations by sending alerts and offering expert guidance, making tax filing hassle-free.

   
   

6. What should I do if my TDS deduction does not match with Form 26AS?

   If there is a mismatch between the TDS deduction and the information in Form 26AS, cross-check the TDS amounts reported in your TDS certificates (Form 16A) from your deductors. Contact the deductor to rectify any discrepancies and ensure that Form 26AS is updated to reflect the correct details. If the mismatch persists, you should report the correct information in your ITR and resolve it during the assessment process.

   
   

7. Can I apply for a lower or nil TDS deduction under Section 194A?

   Yes, if you are eligible for a lower or nil TDS deduction (based on your income level or other exemptions), you can apply to the Assessing Officer for a lower or nil deduction certificate. This certificate, if granted, allows the payer to deduct a lower amount of TDS or no TDS at all. You need to submit the necessary documents to justify your request, and the certificate must be presented to the payer.

   
   

8. What happens if I fail to submit Form 15G/15H but TDS is not deducted?

   If TDS is not deducted due to failing to submit Form 15G/15H, you are still required to report the interest income as taxable in your ITR. Even if TDS was not deducted, the interest earned is considered part of your taxable income. You should also ensure that any exemptions or deductions applicable to your interest income are claimed while filing your return.

   
   

9. Are there any specific types of interest that are exempt from TDS under Section 194A?

   Yes, certain types of interest income are exempt from TDS under Section 194A. For example, interest paid to entities like LIC, UTI, government bodies, and certain mutual funds is exempt from TDS. Additionally, interest on some government bonds or specific securities may also be exempt, depending on the provisions of the Income Tax Act.

   
   

10. How can I ensure that I report the correct interest income in my ITR?

    To ensure that you report the correct interest income in your ITR, always include the gross interest income (before TDS) under 'Income from Other Sources.' Verify the TDS deducted by cross-checking the details in Form 26AS and the TDS certificates (Form 16A). Reporting the gross interest ensures that you are not underreporting your income and claiming the correct TDS credit.

    
    

11. What is the TDS rate if I do not provide my PAN?

    If you do not provide your PAN to the deductor, the TDS rate under Section 194A will be 20%, which is higher than the standard 10% rate that applies when you provide your PAN. To avoid this higher rate, it is crucial to ensure your PAN is linked to all your financial accounts where interest income is generated.

    
    

12. How do I apply for a lower deduction certificate under Section 194A?

    To apply for a lower or nil deduction certificate under Section 194A, you must submit an application to the Assessing Officer, requesting the certificate. The application should include supporting documentation that justifies your eligibility for a lower deduction, such as proof of income or exemptions. Once the application is reviewed, the Assessing Officer may issue the certificate, allowing you to present it to the payer for reduced or no TDS deduction.