What is Section 194 A of IT act ?

Section 194A of the Income Tax Act in India pertains to the deduction of Tax Deducted at Source (TDS) on interest income. Here are the key features of Section 194A:


  • Section 194A applies to any person making a payment of interest, other than interest on securities, to a resident.

Threshold Limit:

  • TDS under Section 194A is applicable if the total interest paid or credited during the financial year exceeds a specified threshold limit.

Threshold Limit for TDS

  • The threshold limit for TDS under Section 194A is ₹5,000 in a financial year. If the total interest payments to a payee exceed this limit, TDS is to be deducted.

Rate of TDS:

The person responsible for making the payment is required to deduct TDS at the applicable rate before making the payment to the recipient. As of my last update, the standard TDS rate is 10%.


Time of Deduction:

  • TDS is required to be deducted at the time of credit of interest to the account of the payee or at the time of payment, whichever is earlier.


Certain exemptions may apply, and certain types of interest payments may be exempt from TDS under specific circumstances. For example, interest paid by banks or specified financial institutions may have different rules.


Filing of TDS Returns:

The entity deducting TDS is required to file TDS returns and provide TDS certificates to the payee.

It’s crucial for the deductor to comply with the TDS provisions, including timely deduction, deposit, and filing of TDS returns. Non-compliance may attract penalties and interest.

Please note that tax laws are subject to amendments, and it’s advisable to consult the latest provisions of the Income Tax Act or seek professional advice like Legato Business Solution llp  for the most current information.