How to Handle Section 194A TDS on Interest Income and Avoid Notices for Incorrect Reporting
- Indrajeet Sharma
- Jun 18
- 8 min read
TDS on interest income is often overlooked but frequently responsible for tax notices and delays in refunds. Section 194A of the Income Tax Act mandates banks, NBFCs, post offices, and other institutions to deduct TDS on interest if it crosses a certain threshold. Failing to monitor this income, update PAN, or file the right declarations like Form 15G/15H can result in excess deductions or mismatches with Form 26AS, leading to notices from the Income Tax Department. Accurate reporting and timely action are the only ways to avoid these complications.
Table of content
Understanding Section 194A: Applicability and Scope
Section 194A deals with TDS on interest income, excluding interest on securities. It applies to:
Fixed deposits (FDs)
Recurring deposits (RDs)
Interest from loans and advances from NBFCs or cooperatives
Post office time deposits
Only resident individuals and HUFs are covered under this provision. Interest paid to non-residents is governed by Section 195. TDS is applicable when interest paid in a financial year exceeds the threshold limits specified by the Income Tax Act. Entities responsible for deducting TDS include banks, NBFCs, cooperative banks, and other financial institutions. However, individuals and HUFs not subject to tax audit under Section 44AB are exempt from this responsibility.
Certain entities like LIC, UTI, RBI, and notified mutual funds are excluded from TDS obligations under this section. Also, savings account interest is not subject to TDS, though it must be reported in the ITR.
Latest TDS Thresholds and Rates for FY 2025-26
As per the latest amendments applicable from April 1, 2025:
Category | Threshold Limit | TDS Rate (With PAN) | TDS Rate (Without PAN) |
Banks, Co-op Societies, Post Offices | ₹50,000 (others) | 10% | 20% |
₹1,00,000 (Senior Citizens) | 10% | 20% | |
Other Institutions (e.g., NBFCs, Firms) | ₹10,000 | 10% | 20% |
These rates are exclusive of surcharge and cess.
PAN is mandatory. Without it, a flat 20% is deducted.
Savings account interest remains outside the purview of Section 194A.
How to Handle Section 194A TDS on Interest Income
Monitor Interest Income Across Multiple Sources
Banks aggregate interest earned across all branches based on your PAN. If the cumulative interest from all deposits exceeds the applicable limit, TDS will be deducted. Therefore, keep a close tab on FDs and RDs across different banks and accounts.
Ensure PAN Submission to Avoid Higher TDS
Failure to furnish PAN results in 20% TDS even if your actual tax liability is nil. Always check that your PAN is updated with all banks and financial institutions.
Submit Form 15G/15H to Avoid Unnecessary Deduction
If your income is below the taxable threshold:
Use Form 15G if you’re below 60 years.
Use Form 15H if you’re 60 or older.
These forms must be submitted at the start of the financial year to each payer. Late submission will not stop deduction, although you can claim a refund while filing your ITR.
Track TDS Credits Through Form 26AS and AIS
Use the income tax portal to review:
Form 26AS – TDS summary reported by deductors
Annual Information Statement (AIS) – Consolidated view of all reported income
Ensure the interest reported in these forms matches your own calculations.
Report Interest Income Properly in ITR
Even if TDS is already deducted, reporting interest income in your return is mandatory. Failure to do so may lead to mismatch notices or interest on under-reported income.
Common Mistakes That Lead to TDS Notices
Assuming small interest amounts are exempt
Not reconciling interest across all banks
Believing that one bank’s TDS covers all your accounts
Ignoring TDS entries in Form 26AS/AIS
These errors often lead to underreporting, triggering scrutiny from the tax department.
How to Avoid Notices for Incorrect Reporting
Reconcile Interest Income with AIS/Form 26AS
One of the most common reasons for receiving tax notices is a mismatch between the interest income reported by banks and the figures entered in your ITR. To avoid this, it's essential to verify all reported interest income through the Annual Information Statement (AIS) and Form 26AS available on the income tax portal. These tools provide a consolidated view of income, TDS deductions, and other financial transactions reported by various entities. Even a small difference—say, interest from a forgotten FD—can flag your return under Section 143(1) for mismatch or Section 139(9) for defective filing. Before you hit 'submit' on your return, double-check that the numbers match. It’s not just about accurate filing—it’s about staying off the radar of automated scrutiny systems.
Timely Submission of Declaration Forms
If your total income falls below the taxable limit and you’re eligible to avoid TDS deductions, declaration forms like Form 15G (for individuals below 60) and Form 15H (for senior citizens) are your best tools. However, these forms must be submitted at the beginning of the financial year to each financial institution or bank. Submitting them mid-year or after TDS has already been deducted won’t reverse the deduction. You’ll then be forced to claim a refund by filing your ITR, which may involve longer wait times for processing. Filing these forms on time can save you from unnecessary deductions and from managing refund delays later.
Keep PAN and Bank Details Updated
Many errors in TDS credit or income mismatches stem from outdated or incorrect PAN details in bank records. If your PAN isn’t correctly linked with your account, the bank may either deduct TDS at a higher rate (20%) or fail to report your interest income altogether, leading to inaccurate AIS data. In some cases, even a change in address or mobile number could delay communication or verification processes. Make sure your PAN, name, and KYC details are accurate and updated across all banks, NBFCs, and financial institutions where you hold deposits. It’s a small step that prevents a cascade of compliance issues.
Respond Promptly to Notices
Receiving a tax notice doesn’t always mean something is wrong—but ignoring it definitely makes things worse. If you receive a notice under Section 143(1) for mismatch or 139(9) for defective return, respond immediately through the e-Proceedings tab on the Income Tax Portal. Log in, view the notice, and prepare a clear response along with required documents such as:
Interest income certificates from banks or NBFCs
Revised computation or ITR (if needed)
Timely, well-documented responses usually resolve the issue without escalation. Delayed or incomplete replies, on the other hand, can result in further complications like tax demands or refund rejections.
TaxBuddy for Seamless Section 194A Compliance
Managing multiple accounts, declaration forms, and matching interest income across sources can be taxing—literally. TaxBuddy simplifies this process by offering:
Real-time interest tracking across banks
Automatic detection of TDS mismatches
Expert-assisted ITR filing with proper reporting of interest income
Whether opting for a self-filing plan or guided filing, TaxBuddy ensures accurate and timely submissions, reducing the chances of receiving income tax notices.
Addressing Common User Scenarios
New Bank Account Opened Mid-Year? The new account is linked to your PAN. Interest from it will be aggregated with others for TDS purposes.
Multiple FDs Across Banks? Each bank tracks interest separately, but you must consolidate it for your ITR.
Missed Form 15G/15H Submission? TDS will be deducted. Claim the excess as refund in your ITR by reporting the total income correctly.
Didn’t Receive TDS Credit? Check if PAN was correctly linked with the account. Also, check Form 26AS for reporting delays by the deductor.
Conclusion
Handling Section 194A compliance isn’t just about saving TDS—it’s about avoiding unnecessary scrutiny from the Income Tax Department. With updated PAN, timely declarations, and correct interest reporting, staying compliant becomes a lot easier. For those who want a smarter way to manage interest income, TDS, and ITR filing in one place, consider using a trusted app. For accurate reporting and peace of mind, download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers both options—self-filing for those comfortable with filing their own tax returns and expert-assisted plans for those who prefer professional support. Users can choose what works best depending on their complexity, comfort, or time availability. Even in the self-filing plan, the system provides automated guidance to ensure no crucial data is missed.
Q2. Which is the best site to file ITR?
While the government portal at incometax.gov.in is the official platform, many users prefer platforms like TaxBuddy for a smoother experience. TaxBuddy enhances the process with features like automated form filling, real-time TDS tracking, expert reviews, and refund status updates, making it one of the most convenient and accurate platforms available.
Q3. Where to file an income tax return?
You can file your ITR directly on the Income Tax Department’s official website. Alternatively, authorized E-Return Intermediaries (ERIs) like TaxBuddy offer a user-friendly platform where individuals can file their returns accurately and on time. TaxBuddy also ensures correct interest income reporting under Section 194A to help avoid tax notices and mismatches.
Q4. What is the TDS rate under Section 194A for FY 2025-26?
For the financial year 2025-26, the TDS rate under Section 194A is 10% if PAN is furnished. If PAN is not provided to the payer (such as a bank or NBFC), the rate shoots up to 20%. These rates apply once the specified threshold for interest income is crossed.
Q5. What is the TDS threshold for senior citizens from April 2025?
Senior citizens enjoy a higher TDS exemption limit of ₹1,00,000 on interest income earned from banks, post offices, and cooperative societies. If the total interest crosses this threshold in a financial year, TDS under Section 194A becomes applicable, provided PAN is submitted.
Q6. Is TDS applicable on savings account interest?
No. Interest earned on savings accounts is not subject to TDS under Section 194A, regardless of the amount. However, this interest still needs to be disclosed in your income tax return under ‘Income from Other Sources’ and is taxable if your total income exceeds the exemption limit.
Q7. Can I claim a refund if excess TDS is deducted?
Yes. If TDS is deducted despite your total income being below the taxable limit—or deducted at a higher rate due to missed PAN or late Form 15G/15H submission—you can claim a refund by filing your ITR. The refund will be processed by the department after verifying your income details.
Q8. How can TaxBuddy help with Section 194A compliance?
TaxBuddy simplifies the complex process of TDS tracking and interest reporting. It syncs your interest data from multiple accounts, alerts you about potential mismatches, and ensures your ITR reflects accurate information. This reduces the chances of getting notices and helps you stay fully compliant under Section 194A.
Q9. Is it necessary to submit Form 15G/15H every year?
Yes, these forms are valid only for the financial year in which they are submitted. To avoid TDS in the next year, you need to submit a fresh Form 15G (for non-senior individuals) or Form 15H (for senior citizens) at the beginning of each new financial year to every payer.
Q10. Can one declaration (Form 15G/15H) cover all banks?
No. Form 15G or 15H must be submitted separately to each bank, NBFC, or financial institution from which you expect to earn interest income. The exemption applies individually, so missing out even one institution can result in TDS deduction from that source.
Q11. How do I check if TDS has been deducted correctly?
Visit the income tax portal and access your Form 26AS or Annual Information Statement (AIS). These documents provide a detailed report of all TDS deductions made in your name. Match this data with your bank interest certificates to ensure the amounts are reported correctly and reflect the right PAN.
Q12. What if I forgot to report interest income in my ITR?
If your filed return doesn’t match the information reported in Form 26AS or AIS, you may receive a notice under Section 143(1) or Section 139(9). In such cases, file a revised return with the corrected interest figures or respond to the notice through the e-proceedings section with the necessary explanations and proofs, like interest certificates.
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