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Applicability of Section 194A

Section 194A deals with payment of interest on other than securities i.e. it generally covers Interest on loans, advances, Fixed deposits etc. Applicability of section 194A widens the scope of number of assessee as there were many number of people who used to borrow or advance loan and still not used to file income tax return. But with introduction of this section, it requires them to file and furnish details.

Following persons shall be covered under applicability of section 194A :-
1. In case of Individual/HUF :- only those person who are Covered u/s 44AB
2. In case of other than Individual/HUF :- Each and Every person.

It means that small scale Individuals/HUF who are not required to get audited u/s 44AB gets relief from applicability of Section 194A.

Taxable Limit:-
1. In case payer is a Bank:- Rs. 10000
2. Other Cases:- Rs. 5000

In case if payment of Interest exceeds the taxable limit, Payer is required to deduct TDS from the payment done to payee.

However there are certain cases where there is non applicability of section 194A :-
1. In case payee is a Bank ,or
2. In case interest is been given by partnership firm to its partner

1. Don’t get confused with what a non CA person thinks about this section. Even my client used to think once that applicability of section 194A is restricted to companies and partnership firm but in reality individuals/HUF are covered only of those who are covered u/s 44AB

2. If you are an article in some CA Firm, then you must have notice that in case if a company had taken Term loan from a Bank, on payment of EMI no TDS is been deducting. Its just because it is exempted in Section 194A. You may have also noticed that loan taken from India Bulls or any other NBFC, TDS is been required to get deducted, Its because it is taken from Non Banking companies.

Before 1st June 2015 there were no requirement of deducting TDS on payment of interest on recurring deposits but now it is been also included under applicability of section 194A. For further details and analysis click on this link and view some excellent lectures of Mr. Raj K agarwal.

Applicability of Section 194A

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