TDS on Interest Under Section 194A: FDs, Loans and Senior Citizens
Banks deduct 10% TDS on FD interest above ₹50,000 (₹1 lakh for seniors). Businesses paying interest on loans must deduct too. Thresholds, exemptions and how to avoid excess TDS.
Section 194A TDS on interest requires covered payers to deduct 10% from interest other than interest on securities paid to residents. For FY 2025-26 / AY 2026-27, the annual threshold is ₹50,000 for banks, co-operative banks and specified post-office deposits, rising to ₹1,00,000 for senior citizens. Other covered payers have a ₹10,000 threshold. Without a valid PAN, TDS is generally 20%. TDS is not the final tax.
What are the interest TDS thresholds for FY 2025-26?
The increased thresholds apply from 1 April 2025, and crossing a threshold triggers deduction on the entire eligible interest, not merely the excess.
The Income-tax Act, 1961 continues to govern FY 2025-26 / AY 2026-27.
| Payer or deposit category | Resident below 60 | Resident senior citizen, aged 60 or above | Rate with valid PAN |
|---|---|---|---|
| Bank | ₹50,000 | ₹1,00,000 | 10% |
| Co-operative bank | ₹50,000 | ₹1,00,000 | 10% |
| Notified post-office deposits | ₹50,000 | ₹1,00,000 | 10% |
| Other covered payers, including companies and firms | ₹10,000 | ₹10,000 | 10% |
These limits arise under Sec. 194A(3)(i) Income-tax Act. Interest exactly equal to the applicable limit does not trigger TDS.
For banks and co-operative banks using core banking solutions, aggregate eligible interest across branches of the same bank. Opening several FDs at different branches does not create separate limits. Separate banks apply their own thresholds, although all taxable interest must still be reported in the return.
The senior-citizen concession applies to residents aged 60 or above at any time during the financial year.
Who must deduct TDS on loan or deposit interest?
Companies, firms and other covered entities must deduct, while individuals and HUFs are covered only when specified preceding-year turnover or receipts limits are exceeded.
Under Sec. 194A(1) Income-tax Act, an individual or HUF must deduct if the immediately preceding financial year’s:
- Business turnover or gross receipts exceeded ₹1 crore; or
- Professional gross receipts exceeded ₹50 lakh.
For FY 2025-26, therefore, check FY 2024-25 figures. Calling this simply “being subject to tax audit” is inaccurate: enhanced audit thresholds do not automatically change these TDS limits.
A private limited company paying ₹30,000 annual loan interest to a director’s resident relative generally deducts ₹3,000. A salaried person outside these business or professional limits ordinarily need not deduct interest TDS on a personal borrowing from a friend.
Relationship does not itself create an exemption. Interest on securities falls under separate provisions, while interest paid to non-residents requires examination under Sec. 195 Income-tax Act, rather than Sec. 194A.
Which interest payments escape TDS under Section 194A?
Specific statutory exclusions protect certain payments, but exemption from TDS does not necessarily mean exemption from income tax.
Important exclusions include:
- Savings-account interest: Ordinary bank savings-account interest is excluded from Sec. 194A deduction. It is not added to FD interest merely to test the FD threshold.
- Specified institutional recipients: Qualifying interest paid to banks, LIC, UTI and specified or notified institutions is excluded under Sec. 194A(3)(iii) Income-tax Act.
- Firm-to-partner interest: This remains excluded under Sec. 194A(3)(iv) Income-tax Act, but a separate deduction obligation now applies.
- Motor accident compensation interest: Interest credited on compensation awarded by the Motor Accidents Claims Tribunal is excluded under Sec. 194A(3)(ix) Income-tax Act. At payment, the exemption under Sec. 194A(3)(ixa) Income-tax Act applies where aggregate interest paid during the year does not exceed ₹50,000.
From 1 April 2025, Sec. 194T Income-tax Act requires firms, including LLPs, to deduct 10% on covered salary, remuneration, commission, bonus and interest paid or credited to partners when their aggregate exceeds ₹20,000 per partner annually. Partner interest is therefore not automatically TDS-free.
Bank recurring deposits are treated as time deposits for these purposes. Post-office treatment depends on the particular scheme.
Can Form 15G or Form 15H prevent deduction?
Eligible residents can submit Form 15G or Form 15H when their estimated annual tax liability is nil and the applicable statutory conditions are satisfied.
Under Sec. 197A Income-tax Act:
- Form 15G: Generally used by eligible residents below 60 and eligible non-individual persons, excluding companies and firms. Estimated tax must be nil, and aggregate income covered by the declaration must not exceed the applicable basic exemption limit.
- Form 15H: Available to resident individuals aged 60 or above whose estimated tax liability is nil. It does not carry Form 15G’s additional income ceiling.
For AY 2026-27, the new-regime rebate under Sec. 87A Income-tax Act can eliminate tax on qualifying normal-rate total income up to ₹12 lakh. However, special-rate income and other eligibility conditions require separate checking. A rebate alone does not remove Form 15G’s additional restriction.
Submit a valid PAN and declaration for each financial year, preferably before deduction begins. Read our Form 15G and 15H guide.
Without a valid PAN, Sec. 206AA Income-tax Act generally produces a 20% deduction. The separate higher-rate rule for specified non-filers under Sec. 206AB was omitted from 1 April 2025.
How does the senior-citizen FD example work?
A senior citizen earning ₹1,20,000 from FDs with one bank faces ₹12,000 TDS unless a valid non-deduction declaration or other relief applies.
Assume Mr. Rao, aged 67, has:
| Particulars | Amount |
|---|---|
| Annual FD interest with one bank | ₹1,20,000 |
| Applicable senior-citizen threshold | ₹1,00,000 |
| TDS at 10% on the entire interest | ₹12,000 |
| Interest remaining after TDS | ₹1,08,000 |
Suppose his other taxable income is ₹8,80,000, making total income ₹10,00,000, entirely taxable at normal new-regime rates. His slab tax is ₹40,000, eliminated by the eligible Sec. 87A rebate. His final tax, including cess, is therefore nil.
He can submit Form 15H based on this estimate. If the bank has already deducted ₹12,000, he can claim that amount as a refund through his ITR, subject to credit verification and any outstanding demands.
If his final liability is higher, the ₹12,000 becomes a tax credit, not an automatic refund.
When must businesses deduct, deposit and report TDS?
Businesses must deduct at credit or payment, whichever occurs earlier, and then meet the deposit, statement and certificate deadlines.
Under Sec. 194A(1) Income-tax Act, credit to an interest payable or suspense account can trigger deduction. Year-end provisions should not be ignored merely because cash payment follows later.
For ordinary non-government deductors:
- Deposit TDS by the 7th of the following month; March deductions are generally due by 30 April, under Rule 30 Income-tax Rules.
- File quarterly Form 26Q by 31 July, 31 October, 31 January and 31 May, respectively, under Rule 31A Income-tax Rules.
- Issue Form 16A within 15 days after the relevant statement due date under Rule 31 Income-tax Rules.
Defaults can attract 1% monthly interest for delayed deduction and 1.5% monthly interest for delayed deposit, including part-months, under Sec. 201(1A) Income-tax Act. Late statements attract ₹200 per day, capped at the TDS amount, under Sec. 234E Income-tax Act.
A 30% expense disallowance may arise under Sec. 40(a)(ia) Income-tax Act, subject to payment deadlines and statutory relief.
Is TDS the final tax on interest?
TDS is only a credit against tax calculated on your total income.
A taxpayer in the 30% slab may owe additional tax, including applicable cess and surcharge. Advance-tax obligations may also arise rather than payment being deferred entirely until ITR filing.
Report gross taxable interest and reconcile credits using our Form 26AS vs AIS vs TIS guide. Eligible senior citizens choosing the old regime may claim up to ₹50,000 under Sec. 80TTB Income-tax Act; this deduction is unavailable under the new regime.
How SP & SC helps
SP & SC reviews interest payments, declaration eligibility and TDS credits, and supports business compliance.
We assist with Form 15G/15H, reconciliations, defaults and TDS return filing. Our fees are a fixed quote after reviewing the case, confirmed before work starts. Contact SP & SC or WhatsApp +91 90356 74566.
Frequently asked questions
What is the FD interest TDS threshold?
₹50,000 annually per bank, or ₹1,00,000 for resident senior citizens, subject to aggregation rules.
Is savings-account interest subject to TDS?
Ordinary bank savings interest is excluded from Sec. 194A deduction, but may remain taxable.
Must I deduct interest paid to a relative?
Only if you are a covered payer and the applicable threshold is exceeded.
Is TDS charged only on interest above the limit?
No. Once the threshold is crossed, deduction applies to the entire eligible interest.
Can I recover excess interest TDS?
Yes. Claim the credit in your ITR; any verified excess over your final liability is refundable.
Written by
SP & SC Editorial
Editorial team at SP & SC Legal and Taxation Services — practising advocates, chartered accountants, and company secretaries publishing hands-on guidance from live client files.
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