Section 194A TDS on Interest: Limits, Rates & Exemptions

What is TDS on interest under Section 194A? Section 194A requires 10% TDS on interest other than interest on securities. Banks deduct it once FD interest crosses Rs. 50,000 a year (Rs. 1,00,000 for senior citizens); other payers deduct above Rs. 10,000. Payees with nil tax liability can avoid it by submitting Form 121, which replaces Form 15G and 15H from FY 2026-27.

Section 194A is one of the most commonly applied TDS provisions in India. Every business that pays interest on loans, deposits, advances, or any other debt (other than interest on securities, which falls under Section 193) must evaluate whether TDS applies.

Banks deduct TDS on fixed deposit interest. Companies deduct TDS on inter-corporate deposits. NBFCs deduct TDS on interest paid to depositors. Interest a firm pays its partners is outside 194A, but since 1 April 2025 it attracts 10% TDS under Section 194T; interest paid to third parties stays under 194A.

This guide covers the rates, thresholds, exemptions, and filing requirements as they apply from FY 2026-27 onward under both the Income Tax Act 1961 and the Income Tax Act 2025.

Who Must Deduct TDS Under Section 194A

Any person responsible for paying interest (other than interest on securities) to a resident must deduct TDS, provided they meet the applicability criteria:

• Any company (private or public)
• Any partnership firm (including LLPs) paying interest to non-partners
• Any co-operative society (including cooperative banks)
• Banking companies (scheduled banks, private banks, public sector banks)
• Post offices (on time deposits, recurring deposits)
• Central Government or State Government (or any local authority)
• Any individual or HUF whose total sales, gross receipts, or turnover exceeded Rs 1 crore (business) or Rs 50 lakh (profession) in the immediately preceding financial year

The individual/HUF threshold is the same as Section 194C, 194H, and 194J. If your business crossed Rs 1 crore turnover in FY 2025-26, you must deduct TDS on interest payments starting FY 2026-27.

What Qualifies as "Interest" Under Section 194A

The definition is broad. "Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim, or other similar right or obligation). This includes:

TDS Rate

Tax Rate Chart

TDS Rates on Interest : Section 194A / Section 393(1)

Applicable to interest payments to residents in FY 2026-27

With valid PAN

Standard rate for all resident payees : FDs, loans, deposits, advances

10%

No PAN furnished

Higher rate under Section 206AA when payee does not provide PAN

20%

Form 121 submitted (below 60)

Replaces Form 15G from FY 2026-27; total income must be below taxable limit

Nil

Form 121 submitted (60+)

Replaces Form 15H; no cap on interest amount for senior citizens

Nil

Lower deduction certificate (Sec 197)

Companies/firms apply for Section 197 certificate; applicable rate is per the certificate

As certified

Source: Section 194A, Income Tax Act 1961; Section 393(1), Income Tax Act 2025; Section 206AA (no-PAN rate); Section 197A (Form 15G/15H/121)

The 10% rate has remained unchanged across the transition from the 1961 Act to the 2025 Act. See the TDS rate chart for FY 2026-27 for rates across all sections in one place.

Threshold Limits: When TDS Is Not Required (UPDATED FY 2026-27)

CRITICAL UPDATE: Finance Act 2025 revised Section 194A thresholds upward, effective April 1, 2025. Many online guides still show the old pre-2025 limits. Here are the CURRENT thresholds for AY 2026-27:

Impact: If you received FD interest of Rs 45,000 from one bank in FY 2024-25, TDS was deducted (limit Rs 40,000). From FY 2025-26, the same Rs 45,000 is below the Rs 50,000 limit, so the bank does not deduct TDS. For senior citizens, the limit rose from Rs 50,000 to Rs 1,00,000. The interest is still taxable; only the TDS trigger changed.

Why this matters: Use Form 121 (replaces Form 15G/15H from 1 April 2026) to avoid TDS if the tax on your estimated total income for the year is nil. But you don't even need to submit a form if your interest income doesn't exceed the thresholds above.

---

Quick Comparison: Banks vs Other Payers (FY 2026-27)

This is the most common confusion point. Use this table to determine if TDS applies:

Key takeaway: Banks have a Rs 50K threshold (Rs 1L for seniors); everyone else is Rs 10K.

Detailed Threshold Limits: When TDS Is Not Required

The thresholds were revised upward by the Finance Act 2025, effective April 1, 2025, and continue to apply in FY 2026-27:

Banks, Cooperative Banks, and Post Offices

The threshold is computed on the aggregate interest credited or paid by all branches of the bank to the same person in a financial year. If a person holds FDs across three branches of the same bank, the bank must add up the interest from all three branches to check the threshold.

If you are a bank FD holder looking at this from the depositor side, see the dedicated guide to learn when your bank cuts TDS, what happens with FDs at multiple banks, and how to submit Form 121: TDS on Bank FD Interest: Rates, Thresholds & Form 121 (FY 2026-27).

All Other Payers (Companies, NBFCs, Firms, Individuals)

This applies to interest on loans, advances, deposits with companies, and any other interest payment not covered by the banking category above.

Complete List of Exemptions: Section 194A(3)

The following interest payments are specifically exempt from TDS under Section 194A:

1. Interest paid by a firm to its partners. A partnership firm (including an LLP) paying interest on capital or current account balances to its partners does not deduct TDS under Section 194A(3)(iv). From 1 April 2025, though, Section 194T requires 10% TDS on such interest (together with salary, commission and bonus) once the total paid to a partner exceeds Rs 20,000 in the year.

2. Interest paid by a cooperative society to its members. A cooperative society (other than a cooperative bank) paying interest on deposits to its members is exempt from TDS. However, a cooperative bank paying interest to its depositors (including members) must deduct TDS if the threshold is exceeded.

3. Interest paid by one cooperative society to another cooperative society. No TDS is required on interest payments between cooperative societies.

4. Interest on savings bank accounts. Interest credited to a savings bank account (not fixed deposit or recurring deposit) is exempt from TDS under Section 194A, regardless of the amount. Note: this exemption is for TDS deduction only. The interest is still taxable income for the recipient; under the old regime only, up to Rs 10,000 of it is deductible under Section 80TTA (Rs 50,000 under Section 80TTB for senior citizens).

5. Post office deposits are not blanket-exempt. Interest on deposits under post office schemes notified under Section 194A(3)(i)(c), such as Time Deposits, Recurring Deposits, the Monthly Income Scheme and the Senior Citizens' Savings Scheme, is subject to TDS once it crosses the same Rs 50,000 / Rs 1,00,000 limit that applies to banks. Only deposits under schemes the Central Government has specifically notified under Section 194A(3)(vi) are outside TDS.

6. Interest paid by the Central Government under the Income-tax Act. Interest credited or paid by the Central Government under the Act, such as interest on refunds under Section 244A, is outside TDS under Section 194A(3)(viii).

7. Interest on Motor Accidents Claims Tribunal awards. Interest on compensation awarded by a Motor Accidents Claims Tribunal is not subject to TDS when it is merely credited (Section 194A(3)(ix)). When it is paid, TDS applies only if the payments in the financial year exceed Rs 50,000 (Section 194A(3)(ixa)).

8. Interest paid to banking companies, LIC, UTI, and financial corporations. Interest paid to these institutions is exempt because they are subject to their own tax compliance framework.

9. Interest on PPF and Sukanya Samriddhi Yojana. Interest on PPF is exempt under Section 10(11) and interest on SSY under Section 10(11A), and no TDS is deducted on either.

10. Zero coupon bonds. Income paid on a zero coupon bond issued on or after 1 June 2005 by an infrastructure capital company or fund, an infrastructure debt fund, a public sector company or a scheduled bank is outside Section 194A (Section 194A(3)(x)).

Form 15G and Form 15H (Form 121 from FY 2026-27)

A resident individual or HUF can submit Form 15G (if below 60 years) or Form 15H (if 60 years or above) to the payer, declaring that their total income for the year is below the taxable limit. On receiving this declaration, the payer must not deduct TDS.

Conditions for Accepting Form 15G

• The payee must be a resident individual, HUF, or a person other than a company or firm.
• The tax calculated on the estimated total income for the year must be nil.
• The aggregate interest income from the payer must not exceed the basic exemption limit.

Conditions for Accepting Form 15H (Senior Citizens)

• The payee must be a resident individual aged 60 years or above.
• The tax calculated on the estimated total income for the year must be nil.
• There is no cap on the interest amount (unlike Form 15G).

Payer's Obligation

The payer must:

1. Collect Form 15G/15H from the payee before the first interest payment or credit of the financial year.
2. Allot a unique identification number to each declaration.
3. Report the particulars of all declarations received in a quarter, with their identification numbers, in the TDS statement for that quarter (Rule 29C).
4. Keep the declarations available for seven years from the end of the financial year in which they were received.

Accepting a Form 15G/15H without verifying the conditions can make the payer liable under Section 201(1) as an "assessee in default" if the payee's actual income turns out to be above the taxable limit.

Transition to Form 121

From FY 2026-27, under the Income Tax Act 2025, Form 15G and Form 15H are replaced by Form 121. Form 121 consolidates both declarations into a single form. The underlying conditions remain substantially the same.

When to Deduct: Time of Credit or Payment

TDS under Section 194A must be deducted at the earlier of:

• The date of credit of interest to the payee's account (including "interest payable" account or any suspense account), or
• The date of actual payment of interest

This is important for banks and NBFCs that accrue interest quarterly but pay it at maturity. TDS must be deducted at the time of credit to the account, not at the time of FD maturity.

For companies paying interest on inter-corporate deposits or loans, TDS is typically deducted when interest is credited in the books of account at the end of each quarter or financial year, even if the actual cash payment happens later.

Transition to Income Tax Act 2025: Section 393

From April 1, 2026, the Income Tax Act 2025 consolidates all non-salary TDS provisions into Section 393. Section 194A is now part of Section 393(1) with a specific payment code in the new table-driven framework.

For payments made on or after April 1, 2026, report the deduction in Form 140 under the new Section 393 payment code instead of the old 194A section code. See the full new TDS payment codes for FY 2026-27 for every section mapping.

Due Dates for TDS Deposit and Filing

Monthly Challan Deposits

Quarterly Return Filing (Form 140, replacing Form 26Q)

After filing the quarterly return, issue the TDS certificate to each payee within 15 days of the due date for filing the return: Form 131 for deductions from FY 2026-27, Form 16A for FY 2025-26 and earlier.

Common Mistakes and How to Avoid Them

1. Not aggregating interest across branches. Banks must aggregate interest from all branches for the same PAN to check the Rs 50,000 or Rs 1,00,000 threshold. Deducting TDS per branch instead of per PAN results in under-deduction and penalties.

2. Treating partner interest as TDS-free. Interest paid by a partnership firm to its partners is exempt under Section 194A(3)(iv), but from 1 April 2025 it falls under Section 194T (10% above Rs 20,000 a year). Firms that still skip TDS on partner interest face interest under Section 201(1A) and disallowance risk.

3. Ignoring accrued interest. TDS must be deducted when interest is credited, not when it is paid. If you accrue interest in your books at year-end, you must deduct TDS at the time of credit even if the cash payment happens in the next financial year.

4. Not collecting Form 15G/15H before the first interest credit. The declaration must be received before the first payment or credit. Accepting Form 15G/15H after TDS has already been deducted does not entitle you to reverse the deduction. The payee must claim the refund in their ITR.

5. Confusing Section 194A with Section 193. Section 193 covers interest on securities, such as debentures and government securities. Section 194A covers everything else (FDs, loans, deposits, advances). Using the wrong section code on the TDS return will cause processing errors under the new Section 393 framework.

6. Not deducting TDS on interest to cooperative society members. If the payer is a cooperative bank (not a regular cooperative society), TDS must be deducted on interest paid to depositors, including members. The exemption in Section 194A(3)(v) for cooperative-to-cooperative payments does not apply to cooperative banks paying their depositor members.

How to Claim TDS Deducted Under Section 194A in Your ITR

If TDS was deducted on your interest income, you must report it in your ITR to claim a refund (if TDS exceeds tax liability) or adjust it against tax due.

Step 1: Find Your TDS Certificate (Form 16A or Form 131)

The bank, NBFC, or other payer must issue the TDS certificate within 15 days of the quarterly TDS filing deadline: Form 16A for interest up to FY 2025-26, Form 131 from FY 2026-27. This certificate shows:

• Interest amount paid
• TDS deducted
• PAN of the payer
• Period (quarterly)

If you don't receive the certificate, check the TDS credit in your Form 26AS and Annual Information Statement (AIS) on the income tax e-filing portal, and ask the payer for the certificate.

Step 2: Report Interest Income in ITR

When filing your ITR:

1. In "Income from Other Sources" section: Report the total interest received from all sources (banks, NBFCs, loans, deposits)
2. Gross interest = Interest after TDS + TDS amount (report the full amount, not net-of-TDS)

Example: If your bank paid Rs 9,000 interest and deducted Rs 1,000 TDS, report Rs 10,000 as gross interest.

Step 3: Report TDS Details

In the TDS schedule of your ITR (the schedule for TDS on income other than salary):

1. Enter the payer's details (bank name, branch, PAN)
2. Enter TDS amount and quarter
3. Match the figures with your TDS certificate and Form 26AS

Step 4: Claim Deduction Under Section 80TTA (or 80TTB)

These deductions are available only under the old tax regime:

• Individuals and HUFs (other than resident senior citizens): Deduct up to Rs 10,000 of savings account interest under Section 80TTA. FD, RD, NBFC and loan interest do not qualify.
• Resident senior citizens (60+): Deduct up to Rs 50,000 of interest on deposits (savings, FDs, RDs) with banks, co-operative banks and post offices under Section 80TTB.

Step 5: Verify TDS Adjustment

The ITR processing system matches your reported TDS against the payer's quarterly TDS statement (Form 26Q, or Form 140 from FY 2026-27), which is what appears in your Form 26AS and AIS. If there's a mismatch:

• Check with the payer (bank) to ensure TDS is shown in their quarterly filing
• Ask the payer to file a correction statement and issue a corrected certificate if the amount is wrong
• File a revised ITR if needed

Common Scenario: Refund of TDS

Example: Your total income tax liability for the year is Rs 5,000. But Rs 8,000 TDS was deducted on FD interest.

• Report Rs 8,000 TDS in your ITR
• Deduct Rs 8,000 from tax due
• Refund due = Rs 8,000 - Rs 5,000 = Rs 3,000

How to Show 194A Income in ITR

When filing your ITR, follow this approach:

All of this interest is reported under Income from Other Sources, and the TDS shown in Form 26AS is claimed against your total tax.

Section 80TTA and 80TTB: Deduction for Interest Recipients

While Section 194A governs TDS deduction by the payer, recipients of interest income can claim deductions on their taxable interest under the old tax regime (the new regime allows neither):

These deductions reduce the taxable interest income in the hands of the recipient, not the TDS obligation of the payer.

Worked Examples: Section 194A TDS in Action

Example 1: Bank Fixed Deposit - Does TDS Apply?

Scenario: Raj holds FDs across three branches of ICICI Bank. In FY 2026-27:

• Branch A: Rs 25,000 interest
• Branch B: Rs 20,000 interest
• Branch C: Rs 8,000 interest

Aggregate interest: Rs 25,000 + Rs 20,000 + Rs 8,000 = Rs 53,000

TDS Applied? YES. Aggregate (Rs 53,000) exceeds Rs 50,000 threshold for banks.

TDS Amount: Once the limit is crossed, TDS applies to the whole interest, not just the excess over Rs 50,000:

• TDS = 10% × Rs 53,000 = Rs 5,300

In ITR: Raj reports Rs 53,000 as gross interest under Income from Other Sources and claims the Rs 5,300 TDS in the TDS schedule. Section 80TTA does not apply to FD interest, so the full Rs 53,000 is taxable at his slab rate. If his tax for the year is lower than the TDS, the difference is refunded.

Example 2: Interest on Unsecured Loan - Different Payer

Scenario: Priya lent Rs 5,00,000 to her brother's proprietorship business. The business pays Rs 12,000 annual interest (2.4% p.a.). The business's turnover exceeded Rs 1 crore in the preceding financial year, so as an individual it must deduct TDS under Section 194A.

Threshold Check: Interest (Rs 12,000) > Rs 10,000 (threshold for non-bank payers)

TDS Applied? YES, 10% TDS = Rs 1,200

In ITR (Brother's side): The Rs 12,000 interest is claimed as a business expense. If he skips the TDS, 30% of the interest (Rs 3,600) is disallowed under Section 40(a)(ia). If his turnover had been Rs 1 crore or less, no TDS would be required.

In ITR (Priya's side, if individual): Report Rs 12,000 as income from other sources. File for TDS refund if total income is low.

Example 3: Senior Citizen Bank Interest

Scenario: Mrs. Sharma, aged 62, has FDs with three different banks in FY 2026-27:

• SBI FD: Rs 60,000 interest
• Axis Bank FD: Rs 50,000 interest
• Federal Bank FD: Rs 20,000 interest

TDS Applied? NO. The Rs 1,00,000 senior citizen limit applies separately to each bank, not to her total across banks. None of the three banks pays her more than Rs 1,00,000, so no bank deducts TDS, even though her total FD interest is Rs 1,30,000.

In ITR: Mrs. Sharma must still report the full Rs 1,30,000 as income. Under the old regime she can claim up to Rs 50,000 under Section 80TTB, leaving Rs 80,000 of interest taxable along with her other income. Under the new regime, no 80TTB deduction is available. Since no TDS was deducted, any tax due on this interest must be paid through advance tax or self-assessment tax.

Compliance Checklist for FY 2026-27

• Identify all interest payments you make: FDs, loans to employees, inter-corporate deposits, advances, security deposits.
• Check the aggregate threshold per payee: Rs 50,000 (banks) or Rs 10,000 (others). For senior citizens at banks: Rs 1,00,000.
• Collect PAN from every payee. Without PAN, deduct at 20%.
• Collect Form 121 (replacing Form 15G/15H) from payees who claim nil tax liability, before the first interest credit.
• Deduct TDS at 10% when interest is credited or paid, whichever is earlier.
• Deposit TDS by the 7th of the following month. Set a recurring calendar reminder.
• File Form 140 (replacing Form 26Q) quarterly and issue Form 131 (replacing Form 16A) within 15 days of the filing due date.
• Upload Form 121 declarations to the e-filing portal quarterly.
• Update your TDS software to use Section 393 payment codes for Q1 FY 2026-27 onward.

Tax Garden Handles Your TDS Compliance

Whether you are a bank paying FD interest, an NBFC managing deposits, or a business paying loan interest, Tax Garden's TDS compliance service tracks every interest payment, applies the correct threshold and rate, deposits TDS before the monthly deadline, and files Form 140 on time every quarter. We also manage Form 121 collection and upload. Flat-rate TDS plans available for different business sizes. Compliance tracked and filed on every deadline, reducing your exposure to disallowances and penalty notices.

For related topics, see our guides on TDS rate chart for FY 2026-27, TDS on contractor payments (Section 194C), TDS on commission (Section 194H), TDS on rent (Section 194I), TDS on professional fees (Section 194J), TDS return filing with Form 24Q and 140, Form 121 replaces Form 15G/15H, and the TDS and TCS section changes for April 2026.

Frequently Asked Questions

What is the TDS threshold on bank fixed deposit interest?

Since 1 April 2025, a bank deducts TDS at 10% only when interest paid or credited to you in the financial year exceeds Rs 50,000, or Rs 1 lakh for senior citizens. The limit is per bank, adding up FDs and RDs across all its branches, not across different banks. Once the limit is crossed, TDS applies to the whole interest, not just the excess.

What is the TDS threshold for interest paid by companies, NBFCs and firms?

For payers other than banks, co-operative banks and post offices, TDS at 10% applies once interest to a payee exceeds Rs 10,000 in the financial year (raised from Rs 5,000 from 1 April 2025). If the payee has not furnished a PAN, the rate is 20% under Section 206AA. A payee holding a Section 197 certificate is taxed at the certified rate.

When should I submit Form 15G, Form 15H or Form 121 to stop TDS on interest?

Form 15G is for residents below 60 whose tax on estimated total income is nil and whose declared income stays within the basic exemption limit. Form 15H is for residents aged 60 or above whose tax is nil. For income from 1 April 2026 (Tax Year 2026-27), both are replaced by Form 121. Submit it before the first interest credit of the year.

Is TDS deducted on savings account interest?

No. Banks do not deduct TDS on savings account interest, whatever the amount; TDS applies to time deposits such as FDs and RDs. The interest is still taxable. Under the old regime you can deduct up to Rs 10,000 of savings interest under Section 80TTA, or up to Rs 50,000 of bank and post office interest under Section 80TTB if you are a senior citizen. The new regime allows neither.

Does a partnership firm deduct TDS on interest paid to its partners?

Section 194A(3)(iv) exempts interest paid by a firm to its partners from 194A, but from 1 April 2025 Section 194T requires the firm to deduct 10% TDS on salary, remuneration, commission, bonus and interest paid or credited to a partner once the total exceeds Rs 20,000 in the financial year. So partner interest is no longer free of TDS.

How do I claim TDS deducted on interest in my ITR?

Report the gross interest, before TDS, under Income from Other Sources and enter the TDS in the TDS schedule so it matches Form 26AS and AIS. The TDS is set off against your total tax liability and any excess is refunded after processing. If the credit is missing, ask the payer to file or correct its TDS return.

Sources

This guide is verified against Section 194A of the Income Tax Act, 1961 (TDS on interest other than interest on securities), Section 194A(3) (complete list of exemptions including partnership firms, cooperative societies, savings accounts, post office deposits, and interest paid by the Central Government under the Act), Section 393(1) of the Income Tax Act, 2025 (consolidated non-salary TDS table, effective April 1, 2026), Finance Act 2025 (threshold revision: banks from Rs 40,000 to Rs 50,000, senior citizens from Rs 50,000 to Rs 1,00,000, others from Rs 5,000 to Rs 10,000, effective April 1, 2025), Section 197 (lower deduction certificate), Section 197A (Form 15G/15H declarations), Section 206AA (TDS at 20% for no PAN), Section 201(1A) (interest on late deduction/deposit at 1% to 1.5% per month), Section 40(a)(ia) (disallowance for non-deduction or non-deposit), Section 80TTA (Rs 10,000 deduction on savings interest), Section 80TTB (Rs 50,000 deduction for senior citizens), and Section 271C (penalty for failure to deduct). Rates, thresholds, and exemptions confirmed from ClearTax, TaxGuru, BajajFinserv, and CAClubIndia reference materials as of May 2026. All rates and thresholds should be verified against incometax.gov.in/iec/foportal/ before applying to specific deductions.