Section 194A — TDS on Interest Other Than Securities (FY 2025-26)

📅 IT Act 2025 transition note: The Income-tax Act, 1961 stands repealed effective 1 April 2026 per Section 536 of the Income-tax Act, 2025. Section 194A consolidates under Section 393 of the Income-tax Act, 2025 along with all other non-salary TDS sections. The 10% rate + Finance Act 2025 thresholds (₹50,000 non-senior bank interest; ₹1,00,000 senior citizen interest) carry forward substantively unchanged. Transactions on or after 1 April 2026 must quote Section 393. See the IT Act 2025 transition reference.

What 194A covers

Section 194A is the primary TDS provision for interest income other than interest on securities (which is covered separately under Section 193). It captures the most common forms of passive interest income for Indian individuals + businesses:

• Bank + cooperative bank + post office fixed deposit (FD) interest
• Recurring deposit (RD) interest
• Interest on unsecured loans paid by companies / firms / LLPs to lenders
• NBFC interest payouts
• Cooperative society interest on debentures

For the cross-section TDS rate reference, see the TDS Rate Chart FY 2025-26. For the new partner-remuneration TDS section that replaces 194A treatment for firm-to-partner interest, see Section 194T.

Who must deduct

The 194A obligation depends on the payer’s entity type.

Banks + coop banks + post office — always

Scheduled commercial banks, cooperative banks engaged in banking, RRBs, and post offices must deduct TDS on interest paid to depositors regardless of the institution’s size.

Companies, firms, LLPs

Any company, partnership firm, LLP, trust, AOP, BOI paying interest on unsecured loans, business borrowings, or NBFC payouts must deduct under 194A.

Individuals + HUFs in tax audit

An individual or HUF paying interest (e.g., interest on a loan from an investor for their proprietorship business) is required to deduct under 194A only if their books were subject to Section 44AB tax audit in the immediately preceding FY. Audit thresholds: turnover > ₹1 cr (or ₹10 cr if ≥ 95% receipts + payments are non-cash); profession gross receipts > ₹50 L (₹75 L for digital-receipts cases).

Non-audit individuals + HUFs — exempt

A non-audit individual / HUF paying interest is outside Section 194A entirely — no TDS obligation, even on substantial interest payments. (The lender, of course, must still declare the income in their own ITR.)

Thresholds + rate (Finance Act 2025)

Finance Act 2025 raised three thresholds effective 1 April 2025. The rate of 10% is unchanged.

Rate: 10%

10% on the interest amount, deducted at the time of credit / payment, whichever is earlier.

Senior citizens (60+): ₹1,00,000 per FY per bank

For a resident individual aged 60 years or more at any time during the FY, banks / cooperative banks / post offices must deduct TDS only if aggregate interest exceeds ₹1,00,000 in the FY (raised from ₹50,000 by Finance Act 2025).

Non-senior individuals: ₹50,000 per FY per bank

For individuals below 60 years, banks / cooperative banks / post offices must deduct only if aggregate interest exceeds ₹50,000 in the FY (raised from ₹40,000 by Finance Act 2025).

Interest from any other payer: ₹10,000 per FY per payee

If the payer is not a bank / cooperative bank / post office — e.g., an NBFC paying interest on a bond, a company paying interest on an unsecured loan, a cooperative society paying interest on its debentures — the threshold is ₹10,000 per payee per FY (raised from ₹5,000 by Finance Act 2025).

No-PAN: 20% (Section 206AA)

If the payee fails to furnish a valid PAN, Section 206AA invokes a penal rate of 20% (instead of 10%).

What is NOT covered by 194A

Several interest categories are deliberately outside 194A — important to know to avoid mis-routing:

• Interest on securities — governed by Section 193 (different rate framework). Includes interest on listed debentures, government securities, etc.
• Savings account interest — exempt from TDS altogether. Declared in ITR; deductible under Section 80TTA (₹10k cap, non-seniors) or 80TTB (₹50k cap, seniors)
• Income tax refund interest — governed by Section 244A; no TDS at source
• Partner-to-firm interest (firm paying interest on partner’s capital) — from FY 2025-26 governed by Section 194T, not 194A. Firm / LLP deducts 10% on aggregate partner payments (salary + interest + bonus + commission) > ₹20,000 / FY
• NRI / NRO interest — governed by Section 195 (requires TAN; higher rates; DTAA relief)
• NRE + FCNR(B) account interest paid by banks to NRIs — exempt under Section 10(4) / 10(4B); no TDS

Form 15G + Form 15H

Section 197A allows a payee to submit a self-declaration to the deductor requesting nil-TDS, where the payee’s estimated income is below the taxable threshold.

Form 15G — for non-seniors (< 60 years)

Two-pronged test:

1. Estimated total income for the FY is below the basic exemption limit (₹3 L under New Regime; ₹2.5 L under Old Regime)
2. AND total interest income from all sources in the FY is below the basic exemption limit

Form 15G is therefore much harder to qualify for than Form 15H — the second test fails for most depositors.

Form 15H — for senior citizens (60+)

Single test: estimated final tax liability for the FY is nil. There is no upper bound on interest income — a senior citizen with ₹6 L FD interest + ₹50 L LTCG that’s offset by Section 54 exemption could qualify for 15H if the final tax liability nets to zero.

Submission + compliance

Forms must be submitted to the deductor (typically the bank) at the start of the FY or before the first interest payout. The deductor is required to report all 15G / 15H declarations to the IT department (typically via Form 26Q’s annexure).

False declaration is a prosecutable offence under Section 277. Banks routinely cross-check 15G / 15H declarations against the deductor’s Form 26AS / AIS for inconsistencies.

Section 197 lower-deduction certificate

For payees who don’t qualify for 15G / 15H but anticipate negative final liability (e.g., from carry-forward losses, foreign tax credit, large depreciation), Section 197 allows application to the Jurisdictional Assessing Officer for a certificate authorising lower- or nil-deduction.

The certificate is valid for the period specified (typically the rest of the FY) and must be furnished to the deductor before each interest payout. Common use: large corporations with significant brought-forward losses; export-oriented entities relying heavily on DTAA-based foreign tax credit.

Worked examples

Example 1 — Senior citizen with FD

A 65-year-old retiree earns ₹1,20,000 in aggregate FD + RD interest from a single bank in FY 2025-26.

• Threshold for senior: ₹1,00,000 per bank per FY
• Interest exceeds threshold
• Bank deducts TDS at 10% on the full ₹1,20,000 (not just the excess over threshold) = ₹12,000
• Net credited to retiree: ₹1,08,000
• Retiree can claim the ₹12,000 as TDS credit in their ITR + may receive a refund if total tax liability is lower

Example 2 — Non-senior across multiple banks

A 45-year-old earns ₹45,000 FD interest from Bank A and ₹40,000 FD interest from Bank B in FY 2025-26.

• Threshold per bank: ₹50,000
• Bank A: ₹45,000 < ₹50,000 → no TDS
• Bank B: ₹40,000 < ₹50,000 → no TDS
• Total interest ₹85,000 — still taxable in the ITR (no TDS deducted does not mean no tax)

The per-bank rule means depositors can split deposits across multiple banks to stay below each bank’s individual threshold and avoid TDS — though the income remains taxable when filing the ITR.

Example 3 — Unsecured corporate loan

An SME borrows ₹5 L from an individual angel investor at 12% annual interest.

• Annual interest = ₹60,000
• Payer is a corporate entity → “other payer” threshold = ₹10,000 (post Finance Act 2025)
• Interest exceeds threshold → SME must deduct 10% TDS = ₹6,000
• Net paid to investor: ₹54,000

Timing of deduction + deposit

Deduction

At the time of credit to the payee’s account (or any account by whatever name) or payment, whichever is earlier. Banks typically credit accrued FD / RD interest quarterly — TDS is triggered at each quarterly credit, not waiting until maturity.

Deposit

Tax deducted in a month must be deposited by the 7th of the following month via Challan ITNS 281. March deductions: by 30 April.

Reporting

• Form 26Q — quarterly TDS return for non-salary deductions. Due dates: Q1 by 31 July, Q2 by 31 October, Q3 by 31 January, Q4 by 31 May
• Form 16A — TDS certificate issued to the deductee within 15 days of the Form 26Q due date, downloadable from TRACES

For the TRACES download + correction workflow, see the TRACES Portal Walkthrough.

Common 194A mistakes

1. Treating savings interest as 194A — savings account interest is NOT subject to 194A TDS. It is taxable in the ITR but the deduction route is Section 80TTA / 80TTB. Banks that incorrectly deduct on savings interest must refund.
2. Aggregating thresholds across banks — the ₹50,000 / ₹1,00,000 threshold is per-bank, not per-PAN. Two banks each paying ₹40,000 doesn’t aggregate to ₹80,000 for the test.
3. Senior citizen using Form 15G — the bank will reject. Seniors must use Form 15H, which has the less-restrictive single-test (nil tax liability) compared to 15G’s two-test.
4. Forgetting RD interest — RD interest counts toward the bank’s aggregate threshold. Splitting across many small RDs at the same bank doesn’t help.
5. Applying old thresholds post 1 April 2025 — continuing to deduct on a corporate loan interest of ₹8,000 (forgetting that Finance Act 2025 raised the “other payer” threshold to ₹10,000). Results in unnecessary vendor disputes + refund-claim cycles.
6. Treating partner-firm interest under 194A — from FY 2025-26 this is Section 194T territory (₹20k threshold, firm-side deductor). Mis-routing creates Section 194A short-deduction + Section 194T non-deduction defaults simultaneously.
7. Confusing cooperative bank vs cooperative society — a cooperative bank’s FD interest follows the bank threshold (₹50k / ₹1L). A cooperative society’s debenture interest follows the “other payer” threshold (₹10k).
8. No-PAN cases — assuming the standard 10% applies when the depositor / lender hasn’t furnished PAN. Section 206AA forces 20%.

For end-to-end Form 26Q + Form 16A + TRACES reconciliation through a partner CA firm, see the TDS Return Filing service.