Section 194A mandates Tax Deducted at Source (TDS) on interest payments (excluding interest on securities) exceeding specified thresholds.
1. Key Provisions
| PARAMETER | DETAILS |
| Applicability | Interest payments by: – Banks (on FDs/RDs) – NBFCs – Post Office (Time Deposits) – Others (e.g., loans, debentures) |
| TDS Threshold | ₹40,000 (₹50,000 for seniors ≥60 years) |
| TDS Rate | 10% (if PAN provided) 20% (if PAN not provided) |
| Exemptions | – Interest from savings accounts – Post Office Savings Bank (≤₹10,000/year) |
2. Who Deducts TDS?
- Banks/NBFCs(on FDs/RDs)
- Cooperative Societies(on deposits)
- Individuals/HUFs(if annual turnover ≥₹1Cr)
- Companies, Partnership Firm, and other Business Entities.
3. How to Avoid/Lower TDS?
✅ Submit Form 15G (Non-Seniors) / Form 15H (Seniors) – If total income is below taxable limit.
✅ Provide PAN – Avoid higher TDS (20%).
✅ Opt for Cumulative FDs – Defer interest payout to stay below threshold.
4. Compliance Requirements
- TDS Deposit: By 7th of next month.
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato payee.
Penalty: Late deduction attracts interest @ 1% per month.
Example
- FD Interest: ₹60,000 (for a non-senior).
- TDS Deducted: ₹6,000 (10% if PAN provided).
- Net Payment: ₹54,000.
Key Points
- Plan FD Investments: Split across banks to stay below ₹40K threshold.
- Senior Citizens: Higher threshold (₹50K) reduces TDS burden.
- Verify Form 26AS: Ensure TDS credits reflect in your tax records.
1. Adjustment in TDS Amount Under Section 194A (4)
Section 194A(4) of the Income Tax Act, 1961, allows for adjustments in TDS deduction on interest income (other than securities) in specific scenarios to ensure accurate tax withholding.
1. When Can Adjustments Be Made?
Adjustments are permitted in the following cases:
- Under-Deduction in Previous Months:
- If TDS was not deducted or was short-deductedin earlier months, the deductor (e.g., bank/NBFC) can recover the balance in subsequent payments within the same financial year.
- Over-Deduction in Previous Months:
- If excess TDSwas deducted earlier, the deductor can adjust the surplus against future payments to the same payee in the same FY.
2. Conditions for Adjustment
✅ Same Payee: Adjustments can only be made for the same recipient.
✅ Same Financial Year: Corrections must be completed within the same FY (no carry-forward to next year).
✅ No Refunds: Deductors cannot refund excess TDS directly; payees must claim it via ITR filing.
3. Example Scenarios
Case 1: Under-Deduction Correction
- FD Interest Paid:
- April: ₹30,000 (No TDS as < ₹40K threshold)
- May: ₹50,000 (TDS should be ₹5,000 but bank forgot)
- June: ₹60,000 → Bank deducts ₹11,000(₹5,000 for May + ₹6,000 for June)
Case 2: Over-Deduction Adjustment
- FD Interest Paid:
- July: ₹1,00,000 (TDS ₹10,000 deducted instead of ₹5,000)
- August: ₹50,000 → Bank deducts ₹0(adjusts ₹5,000 excess from July)
4. Compliance Requirements
- Record-Keeping: Deductors must maintain adjustment recordsfor 7 years.
- TDS Returns: Report adjusted amounts in Form 26Q.
- Form 16A: Reflect the final TDSafter adjustments.
5. Penalties for Misuse
- False Adjustments: Deductor liable for interest @ 1.5% per month+ penalty under Section 271H.
- Non-Adjustment: Payee can claim refund only via ITR.
