TDS on Interest (Other than Interest on Securities)
Introduction
Tax is deducted at source (TDS) at 10% under section 194A on interest (excluding interest on securities) paid or payable to a resident individual if the payer is:
- A person other than an individual or HUF, or
- An individual or HUF whose turnover exceeds Rs. 1 crore (business) or Rs. 50 lakh (profession) in the preceding financial year.
- TDS is deducted at the time of credit or payment, whichever is earlier.
Applicability of TDS
- Deductor:Any person making interest payments, except certain individuals and HUFs below the turnover threshold.
- Deductee:A resident payee. For non-residents, TDS is deducted under Section 195.
- Threshold Limits:TDS applies only if interest exceeds specified limits:
o Rs. 1,00,000 (Senior Citizens) / Rs. 50,000 (Others) – Banks, Co-operative Banks, and Post Office deposits.
o Rs. 10,000 – Other cases.
- Timing of Deduction:TDS is deducted at credit or payment, including when credited to a suspense account.
TDS Rates
- Standard Rate:10% (without surcharge or cess).
- If PAN is Not Provided:TDS is deducted at the rate under Section 206AA.
Exemptions from TDS
TDS is not deducted in the following cases:
- Bank Deposits:Interest on savings and non-time deposits in banks and co-operative banks.
- Interest to Government Entities:Payments to RBI, LIC, UTI, notified mutual funds, and specified corporations.
- Post Office Deposits:National Savings Certificates, Kisan Vikas Patra, and other notified schemes.
- Partners in a Firm:No TDS on interest paid by a firm to its partners.
- Scheduled Tribe Members:Interest payments by specified banks to Scheduled Tribe members (subject to conditions). [Notification No. 110/2021, dated 17-09-2021]
- Accident Compensation:No TDS on tribunal-awarded interest up to Rs. 50,000.
- Zero Coupon Bonds:No TDS on interest from notified zero-coupon bonds.
- Business Trusts:No TDS on interest paid by special purpose vehicles to business trusts.
- Interest in case of specified IFSC Units:Exempt subject to declaration in Form No. 1. [Notification No. 28/2024, dated 07-03-2024, and Notification No. 67/2025, dated 20-06-2025]
Compliance Requirements
- Nil or Lower Deduction Certificate:The recipient may apply under Section 197 for lower TDS or submit a self-declaration under Section 197A.
- TDS Deposit:TDS must be deposited within seven days from the end of the deduction month, except for March, which is due by April 30. Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statements:Quarterly TDS statements must be filed using Form 26Q.
- TDS Certificate:Form 16A must be issued within 15 days from the due date of the TDS return.
Penalties for Non-Compliance
- Failure to Deduct/Deposit TDS:Liable for interest under Section 201 and penalty under Section 271C.
- Late Filing of TDS Statements:Fee of Rs. 200 per day under Section 234E, plus penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificates:Subject to penalties under Section 272A.