Section 194A TDS on Interest Income FY 2025-26 — Budget 2025 Thresholds
Section 194A of the Income Tax Act governs TDS on interest income other than interest on securities. If you earn interest from bank deposits, NBFCs, or any other source, this section determines whether TDS applies and at what rate.
Budget 2025 brought significant relief by raising the threshold limits effective 1st April 2025.
TDS RATE UNDER SECTION 194A
The standard TDS rate on interest income remains 10%. If the payee does not furnish their PAN, TDS is deducted at 20% under Section 206AA.
REVISED THRESHOLD LIMITS FOR FY 2025-26
Budget 2025 (Finance Act, 2025) raised the thresholds:
- Banks, post offices, co-operative societies (general): Rs 50,000 per year (up from Rs 40,000)
- Banks, post offices, co-operative societies (senior citizens 60+): Rs 1,00,000 per year (up from Rs 50,000)
- All other payers (NBFCs, companies, firms, individuals): Rs 10,000 per year (up from Rs 5,000)
If your total interest income from a single payer stays below the applicable threshold in a financial year, no TDS is deducted.
WHO MUST DEDUCT TDS
Any person paying interest must deduct TDS under Section 194A when the interest exceeds the threshold. Banks, NBFCs, co-operative societies, post offices, and companies are all covered. Individuals and HUFs are also liable if their business turnover exceeded Rs 1 crore or professional gross receipts exceeded Rs 50 lakh in the preceding financial year.
SAVINGS ACCOUNT VS FIXED DEPOSIT
TDS under Section 194A applies primarily to fixed deposit and recurring deposit interest. Banks do not deduct TDS on savings account interest. However, all savings account interest is taxable income. You can claim a deduction up to Rs 10,000 under Section 80TTA (or up to Rs 50,000 under Section 80TTB for senior citizens on all deposit interest), but you must report the full amount in your return.
AVOIDING TDS WITH FORM 15G AND 15H
If your estimated tax liability for the year is nil, you can submit Form 15G (below 60 years, total income below taxable limit) or Form 15H (senior citizens 60+, estimated tax nil) to the bank or payer. This ensures no TDS is deducted on your interest income. Submit these forms at the start of the financial year.
PRACTICAL TIP
Even if TDS is deducted, it is not a final tax. You can claim credit for TDS in your income tax return under Section 199. If your actual tax liability is lower than the TDS deducted, you will receive a refund. Always verify TDS credits in your Form 26AS or AIS before filing.
Budget 2025 brought significant relief by raising the threshold limits effective 1st April 2025.
TDS RATE UNDER SECTION 194A
The standard TDS rate on interest income remains 10%. If the payee does not furnish their PAN, TDS is deducted at 20% under Section 206AA.
REVISED THRESHOLD LIMITS FOR FY 2025-26
Budget 2025 (Finance Act, 2025) raised the thresholds:
- Banks, post offices, co-operative societies (general): Rs 50,000 per year (up from Rs 40,000)
- Banks, post offices, co-operative societies (senior citizens 60+): Rs 1,00,000 per year (up from Rs 50,000)
- All other payers (NBFCs, companies, firms, individuals): Rs 10,000 per year (up from Rs 5,000)
If your total interest income from a single payer stays below the applicable threshold in a financial year, no TDS is deducted.
WHO MUST DEDUCT TDS
Any person paying interest must deduct TDS under Section 194A when the interest exceeds the threshold. Banks, NBFCs, co-operative societies, post offices, and companies are all covered. Individuals and HUFs are also liable if their business turnover exceeded Rs 1 crore or professional gross receipts exceeded Rs 50 lakh in the preceding financial year.
SAVINGS ACCOUNT VS FIXED DEPOSIT
TDS under Section 194A applies primarily to fixed deposit and recurring deposit interest. Banks do not deduct TDS on savings account interest. However, all savings account interest is taxable income. You can claim a deduction up to Rs 10,000 under Section 80TTA (or up to Rs 50,000 under Section 80TTB for senior citizens on all deposit interest), but you must report the full amount in your return.
AVOIDING TDS WITH FORM 15G AND 15H
If your estimated tax liability for the year is nil, you can submit Form 15G (below 60 years, total income below taxable limit) or Form 15H (senior citizens 60+, estimated tax nil) to the bank or payer. This ensures no TDS is deducted on your interest income. Submit these forms at the start of the financial year.
PRACTICAL TIP
Even if TDS is deducted, it is not a final tax. You can claim credit for TDS in your income tax return under Section 199. If your actual tax liability is lower than the TDS deducted, you will receive a refund. Always verify TDS credits in your Form 26AS or AIS before filing.
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Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
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