Income tax law | TDS on interest | Updated October 2026

Section 194A: TDS on Interest Other Than Interest on Securities

Section 194A of the Income-tax Act, 1961 governs tax deducted at source (TDS) on interest paid to residents, other than interest on securities. It commonly applies to fixed deposits, recurring deposits, loans and certain other interest payments. The law changed its monetary thresholds from 1 April 2025, and corresponding withholding provisions under the Income-tax Act, 2025 apply to transactions on or after 1 April 2026.

Current position: For qualifying bank, co-operative bank and notified post-office interest, the annual TDS threshold is Rs. 50,000, increased to Rs. 1,00,000 for a resident senior citizen. In other covered cases it is generally Rs. 10,000. TDS is ordinarily 10% when a valid PAN is furnished. These are withholding thresholds, not tax-free income limits.

1. Meaning and scope of Section 194A

Interest other than interest on securities means interest not covered by the separate withholding provision for interest on securities (Section 193). Examples include interest on bank term deposits, recurring deposits and interest paid on qualifying private loans. The character of the payment and applicable exemptions must be checked before deducting tax.

Under Section 194A(1), a person responsible for paying covered interest to a resident must deduct tax when interest is credited to the payee's account or paid, whichever occurs earlier. A credit to an interest payable or suspense account is treated as credit to the payee. Interest paid to non-residents is generally examined under Section 195 and applicable treaty rules instead.

2. Who must deduct TDS?

Companies, firms, banks and other covered payers must comply when the payment meets the statutory conditions. An individual or Hindu undivided family (HUF) carrying on a business or profession is also covered if its turnover or gross receipts in the immediately preceding financial year exceed Rs. 1 crore for business or Rs. 50 lakh for profession under the amended Section 194A(1) proviso. Specific co-operative society rules and exemptions require separate consideration.

3. TDS rate and threshold limits

Nature of payer or interest	Threshold per payee per year	Ordinary TDS rate
Banking company, co-operative bank or qualifying notified post-office deposit: payee other than a resident senior citizen	Rs. 50,000	10%
Same categories: resident senior citizen aged 60 or more during the relevant year	Rs. 1,00,000	10%
Other interest payments covered by the provision	Rs. 10,000	10%

The higher thresholds took effect on 1 April 2025 under the Finance Act, 2025. The threshold is applied to interest credited, paid or likely to be credited or paid in the relevant year. Once the threshold is exceeded, tax is generally deducted on the entire taxable interest amount, not only the excess.

For banks and other specified payers using core banking solutions, interest may need to be aggregated across branches. Without core banking, the statutory branch-level rule may apply in specified cases. The payer should also consider statutory aggregation rules, the payee's PAN and valid declarations or certificates.

4. Important exemptions and special cases

Interest paid by a firm to its partner: generally excluded from Section 194A; however, separate rules, including Section 194T introduced for specified partner payments from 1 April 2025, should be checked for the nature of the payment.
Specified institutional recipients: payments to certain banks, financial corporations, insurers and other notified bodies may be excluded under Section 194A(3).
Co-operative societies: member-interest exclusions are subject to statutory conditions and special turnover/interest thresholds for larger co-operative societies. A co-operative bank is not automatically entitled to the ordinary member exemption.
Specified deposits and notified schemes: exemptions may apply to certain non-time deposits, agricultural credit societies and notified government schemes, subject to the exact provision.
Motor accident compensation: the original Section 194A separately addresses interest credited and interest paid on Motor Accidents Claims Tribunal compensation; apply the statutory payment-based threshold and check the corresponding current provision.
Zero-coupon bonds and specified income: certain payments identified in the statute may be outside the deduction requirement.

5. Form 15G, Form 15H, PAN and lower deduction

Eligible residents may submit a valid Form 15G or Form 15H declaration to the payer when statutory conditions are met. Form 15H is intended for eligible resident senior citizens. These forms do not automatically apply to every payee or payment. A lower or nil-deduction certificate, where available, must be obtained through the prescribed procedure and honoured only within its scope.

Where PAN is not furnished, Section 206AA of the 1961 Act may require a higher deduction rate, subject to applicable exceptions and subsequent law. The payer must follow the corresponding provisions for tax year 2026-27 onwards.

6. Practical illustrations

Example A - bank deposit: A resident aged 45 earns Rs. 56,000 in aggregate interest from covered deposits with one bank in a year. As this exceeds Rs. 50,000, the bank generally deducts Rs. 5,600 at 10%, assuming no valid exception or lower-deduction authority.

Example B - senior citizen: A resident aged 67 receives Rs. 95,000 in covered bank interest. The Rs. 1,00,000 threshold is not exceeded; Section 194A TDS is generally not required on that interest, although the interest may still be taxable.

Example C - business loan: A company credits Rs. 15,000 of ordinary loan interest to a resident lender. If no exemption applies, the Rs. 10,000 threshold is exceeded and TDS is generally Rs. 1,500.

7. Deductor compliance checklist

Confirm the payee's residential status and whether the payment is interest covered by the provision.
Determine whether the payer is obligated to deduct and whether any statutory exemption applies.
Aggregate relevant interest for the applicable year and apply the correct threshold.
Verify PAN, eligible declarations and any valid lower/nil-deduction certificate.
Deduct tax at the earlier of credit or payment; deposit it and file the prescribed TDS statement within applicable deadlines.
Issue the relevant TDS certificate, reconcile Form 26AS/AIS where applicable and correct errors promptly.

8. Income-tax Act, 2025: corresponding provision

For payments or credits on or before 31 March 2026, Section 194A of the Income-tax Act, 1961 remains the applicable withholding provision. For transactions whose earlier withholding event occurs on or after 1 April 2026, the corresponding rules are in Section 393(1), Table serial numbers 5(ii) and 5(iii) of the Income-tax Act, 2025, with exclusions in Section 393(4), Table serial number 7. The statutory table retains the Rs. 1,00,000, Rs. 50,000 and Rs. 10,000 thresholds for the respective categories.

For 2026-27 withholding and reporting, use the relevant table entry under the 2025 Act rather than automatically quoting the old Section 194A number. Transitional obligations depend on the date of the earlier credit/payment event.

9. Frequently asked questions

Is bank interest below Rs. 50,000 tax-free?

No. The Rs. 50,000 limit is generally a threshold for deducting tax at source, not an exemption from income tax. Taxability depends on the recipient's overall circumstances.

Does a senior citizen get the Rs. 1,00,000 limit for every interest payment?

No. The higher threshold applies to specified bank, co-operative bank and notified post-office interest categories for a qualifying resident senior citizen. Other covered payments may have a different threshold.

Is TDS calculated only on interest above the threshold?

Generally no. Once the relevant threshold is exceeded, deduction applies to the entire covered interest amount, subject to exemptions or certificates.

Does Section 194A cover interest paid to a non-resident?

No. Section 194A addresses payments to residents. Payments to non-residents require separate consideration, commonly under Section 195 and treaty provisions.

10. Official legislation and resources

This article explains general statutory provisions as updated to October 2026. The actual withholding obligation depends on the transaction date, status of payer and payee, applicable notifications, declarations and current law.