---
title: "TDS on Interest Payments | Section 194A Guide"
description: "Understand TDS on interest payments under Section 194A. Learn rates, calculation, exemptions, and reporting methods with Busy software."
canonical: "https://busy.in/tds/tds-on-interest-payments-calculation-and-reporting-methods/"
author: "Jagdish Prasad"
published: "2025-10-14T03:00:00.000Z"
category: "TDS"
---

-   TDS on resident interest, earlier under Section 194A, is covered under Section 393 of the Income-tax Act, 2025 from 1 April 2026.
-   Bank/co-operative bank/notified post office time deposit TDS threshold: ₹50,000 general, ₹1,00,000 for senior citizens. Company/non-bank interest threshold: ₹10,000.
-   The usual TDS rate for resident interest payments is 10% when PAN is available. If PAN is not furnished, higher TDS may apply under the applicable PAN-related TDS provisions.
-   Once the applicable threshold is crossed, TDS is generally deducted on the full eligible interest amount, not only on the amount above the threshold.
-   Savings interest is not subject to FD TDS rules. Section 80TTA for non-seniors up to ₹10,000 and Section 80TTB for seniors up to ₹50,000 may apply separately.
-   For FY 2026-27 onwards, readers should also note new form references: Form 121, Form 128, Form 140 and Form 131.

This guide explains when TDS applies on interest, how it is calculated, what forms are used, how deductors report it, and how taxpayers can claim credit or refund.

# TDS on Interest Payments: Calculation and Reporting Methods

## **Current Legal Position: Section 194A and Income-tax Act, 2025**

For deductions made up to 31 March 2026, TDS on interest other than interest on securities was commonly governed by Section 194A of the Income-tax Act, 1961. From 1 April 2026, the Income-tax Act, 2025 applies, and the corresponding provisions for interest income appear under [Section 393](https://www.incometaxindia.gov.in/w/section-393-5) ,

## **What is TDS on Interest Payments?**

TDS on interest means that the payer deducts tax before paying or crediting the interest to the recipient. It mainly applies to interest other than [**interest on securities**](https://busy.in/tds/understanding-tax-deduction-at-source-tds-under-the-income-tax-bill-2025/) , such as [**interest on fixed deposits**](https://busy.in/tds/tds-on-fixed-deposits/) , recurring deposits, company deposits, unsecured loans and certain business borrowings.

The purpose is simple: interest income is taxable for the recipient, so the law requires certain payers to deduct tax at source and deposit it with the government. The recipient can later claim this TDS as credit while filing the [**income tax return**](https://busy.in/tds/tds-refund-process-claim-refund/) .

## When Does TDS on Interest Apply?

| Condition | Explanation |
| --- | --- |
| The payment is interest other than interest on securities | Interest on securities is covered separately. |
| The payee is a resident | Interest paid to non-residents is handled under Section 195, not Section 194A. |
| The payer is [**required to deduct TDS**](https://busy.in/tds/who-must-pay-tds-in-india-deductors-individuals-businesses-government/) | Companies, firms, banks, co-operative banks, post offices and certain audited individuals/HUFs may be covered. |
| The interest crosses the applicable threshold | The threshold depends on payer type and payee category |

An individual or HUF is generally required to deduct TDS on interest only when they fall within the specified business or professional audit-linked conditions. A personal loan interest payment by a normal individual is not automatically covered merely because the amount is high.

## **TDS Threshold Limits for Interest Payments**

These [threshold limits](https://www.incometaxindia.gov.in/w/threshold-limits-under-income-tax-act) generally apply to the [**aggregate interest**](https://busy.in/tds/threshold-limits-for-tds-deduction-under-the-income-tax-act/) paid or credited during the financial year or tax year, as applicable, and not to each separate transaction. For interest on compensation awarded by the Motor Accident Claims Tribunal, the threshold is checked with reference to the amount paid during the year.

| Type of payer/payment | Payee category | Threshold |
| --- | --- | --- |
| Banking company, co-operative bank, or notified post office time deposit | Senior citizen | ₹1,00,000 |
| Banking company, co-operative bank, or notified post office time deposit | Other resident person | ₹50,000 |
| Other interest payments, such as company deposits, unsecured loans and non-bank interest payments | Resident payee | ₹10,000 |
| Interest on Motor Accident Claims Tribunal compensation | Resident payee | ₹50,000 |

Also, for banks and co-operative banks using core banking solutions, the ₹50,000/₹1,00,000 threshold is checked bank-wise and not branch-wise.

**TDS Rates on Interest Payments**

| Situation | TDS treatment |
| --- | --- |
| PAN is available | Usually 10% for resident interest payments |
| PAN is not available | Higher deduction may apply under Section 206AA |
| Valid self-declaration is submitted | No TDS, if conditions are satisfied |
| Lower or nil deduction certificate is available | TDS as per certificate |

For resident payments, [**surcharge and cess**](https://busy.in/tds/section-206aa-surcharge-cess-pan-requirements/) are generally not added to the basic TDS rate under this section. For non-residents, surcharge and health and education cess may apply depending on the rate, status and treaty position.

## **How TDS on Interest is Calculated**

### **Example 1: FD interest for a non-senior citizen**

| Particulars | Amount |
| --- | --- |
| Total FD interest during the year | ₹75,000 |
| Applicable threshold | ₹50,000 |
| Threshold crossed? | Yes |
| TDS calculation | 10% of ₹75,000 |
| TDS deducted | ₹7,500 |
| Net interest credited | ₹67,500 |

### **Example 2: Senior citizen FD interest**

| Particulars | Amount |
| --- | --- |
| Total FD interest during the year | ₹92,000 |
| Applicable TDS threshold for senior citizen | ₹1,00,000 |
| Threshold crossed? | No |
| TDS deducted | Nil |

Since the senior citizen’s FD interest is below the ₹1,00,000 TDS threshold, the bank is not required to deduct TDS under the normal threshold rule. However, the interest may still be taxable in the ITR depending on the taxpayer’s total income, tax regime and available deductions such as [**Section 80TTB**](https://busy.in/tds/tds-on-exempt-income-or-lower-tax-liability/) .

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### **Example 3: Interest paid by a company on unsecured loan**

| Particulars | Amount |
| --- | --- |
| Interest paid by company | ₹18,000 |
| Applicable threshold | ₹10,000 |
| Threshold crossed? | Yes |
| TDS at 10% | ₹1,800 |
| Net payment | ₹16,200 |

## **When is TDS Deducted?**

TDS on interest is deducted at the earlier of these two events:

1.  When interest is credited to the payee’s account
2.  When interest is actually paid

Credit to a suspense account or similar account is also treated as credit for [**TDS purposes**](https://busy.in/tds/why-tds-is-important-for-tax-compliance-in-india/) . This means TDS may apply even before the recipient physically receives the money, if the interest has already been credited in the payer’s books.

## **Common Interest Payments Covered Under TDS**

-   Fixed deposit interest
-   Recurring deposit interest
-   Company deposit interest
-   Interest on unsecured business loans
-   Inter-corporate deposit interest
-   Interest paid by firms or companies to outside lenders
-   Certain interest payments by co-operative banks
-   Interest on compensation, subject to specific rules and threshold

The key test is not just the name of the payment. The real nature of the payment, the payer, the recipient and the applicable threshold must be checked.

## Interest Payments Where TDS May Not Apply

| Case | Practical meaning |
| --- | --- |
| Interest paid to banks, RBI and certain specified institutions | TDS may not apply when interest is paid or credited to specified institutional recipients such as banking companies, financial corporations, LIC, UTI, insurance companies and other covered institutions. |
| Savings account interest | Normal savings account interest is generally outside the FD-style TDS rule. However, the interest may still be taxable and should be reported correctly in the ITR. |
| Interest paid to non-residents | Do not apply the resident interest TDS rule. Check the non-resident TDS provisions, applicable rate, surcharge, cess and DTAA documentation separately. |
| Valid self-declaration or lower/nil deduction certificate | No or lower TDS may apply if the payee submits a valid declaration or certificate and all eligibility conditions are satisfied. |
| Interest paid by a firm to its partner | Do not treat this as a general "no TDS" case. While it is excluded from the normal interest TDS rule, partner payments are separately covered. From 1 April 2025, TDS may apply at 10% if salary, remuneration, commission, bonus or interest paid/credited to a partner exceeds ₹20,000 in aggregate during the financial year. |

The Income-tax Act, 2025 continues to provide no-deduction cases for certain interest payments, including interest paid to specified institutions, certain co-operative society payments, and deposits other than specified time deposits. However, interest paid by a firm to its partner should be explained carefully, as partner payments are separately covered under the [**partner-payment TDS rule**](https://busy.in/tds/section-393-tds-on-professional-and-technical-fees-rates-threshold-due-dates-and-compliance-guide-for-tax-year-2026-27/) , under which TDS may apply once the ₹20,000 threshold is crossed.

## **TDS on FD and RD Interest**

FD and RD interest are among the most common cases where TDS applies. From 1 June 2015, interest on recurring deposits is also treated under the time deposit framework for TDS threshold purposes.

For banks using core banking solutions, interest from different branches is clubbed under the same bank before applying the threshold. Therefore, splitting FDs across branches of the same CBS-enabled bank will not necessarily avoid TDS.

### **Joint FD treatment**

For a joint FD, banks usually deduct TDS using the PAN of the first or primary holder. However, the actual taxability of interest should follow the real ownership of funds. If the second holder contributed the funds, the final income-reporting position may differ from the TDS-reporting position. This should be reconciled carefully while filing the ITR.

## **TDS on Savings Account Interest**

| Type of interest | TDS treatment | Income tax treatment |
| --- | --- | --- |
| Savings account interest | Generally no TDS under the regular FD interest rule | Taxable, but deduction may be available under Section 80TTA or 80TTB |
| FD/RD interest | TDS may apply if threshold is crossed | Taxable as income from other sources |
| Senior citizen deposit interest | TDS threshold is higher | Section 80TTB deduction may be available, subject to conditions |

## **Form 15G, Form 15H and Form 121**

A taxpayer can submit a declaration to avoid TDS if the tax on estimated total income is nil and other conditions are satisfied. Form No. 121 has been introduced as the new declaration form replacing Forms 15G and 15H under the Income-tax Rules, 2026. It is meant for eligible taxpayers whose tax liability is nil, so unnecessary TDS can be avoided.

| Period/context | Form reference |
| --- | --- |
| Under Income-tax Act, 1961 | Form 15G and Form 15H |
| Under Income-tax Rules, 2026 | Form No. 121 |

### **Practical points**

-   Submit the declaration before interest is credited.
-   Submit it separately to each bank or payer.
-   Renew it every year.
-   Do not submit it if your estimated tax liability is not nil.
-   NRIs should not use these resident declaration forms for NRO interest.

## **Lower or Nil TDS Certificate**

If TDS at the normal rate is higher than the taxpayer’s actual expected liability, the taxpayer can apply for a lower or nil deduction certificate. Form No. 128 is used to apply for lower or nil deduction of income tax under the Income-tax Act, 2025. Once approved, the certificate can be verified electronically and the payer can deduct tax at the rate mentioned in the certificate.

| Period/context | Form reference |
| --- | --- |
| Under Income-tax Act, 1961 | Form 13 under Section 197 |
| Under Income-tax Act, 2025 | Form No. 128 under Section 395(1) |

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## TDS on Interest Paid to NRIs

Section 194A applies only to resident payees. If interest is paid to a non-resident, [**Section 195**](https://busy.in/tds/section-195-of-income-tax/) must be checked instead. For NRIs, the TDS rate depends on the type of interest, residential status, applicable domestic law, surcharge, cess, and DTAA benefit. NRO FD interest is generally taxable in India, while NRE FD interest may be exempt if the account and residential status conditions are satisfied.

A [**DTAA benefit**](https://busy.in/tds/how-tds-rates-are-decided-income-tax-act-finance-act-dtaa/) should not be applied casually. The NRI typically needs to provide documents such as Tax Residency Certificate, Form 10F,
and other declarations required by the bank or payer.

## **TDS Deposit, Return Filing and Certificate**

### **TDS deposit due date**

| Month of deduction | Deposit due date |
| --- | --- |
| April to February | 7th of the next month |
| March | 30 April |

### **TDS return filing**

| Period/context | Return form |
| --- | --- |
| Under Income-tax Act, 1961 | Form 26Q |
| Under Income-tax Act, 2025 | Form No. 140 |

[Form No. 140](https://www.incometaxindia.gov.in/documents/d/guest/fn-140) is the [**quarterly statement**](https://busy.in/tds/overview-of-tds-return-forms-24q-26q-27q-27eq/) for non-salary resident TDS under the Income-tax Rules, 2026. It covers non-salary resident payments including interest other than interest on securities.

| Quarter | Period | Filing due date |
| --- | --- | --- |
| Q1 | April to June | 31 July |
| Q2 | July to September | 31 October |
| Q3 | October to December | 31 January |
| Q4 | January to March | 31 May |

### **TDS certificate**

| Period/context | Certificate |
| --- | --- |
| Under Income-tax Act, 1961 | Form 16A |
| Under Income-tax Act, 2025 | Form No. 131 |

Form No. 131 is the new TDS certificate for non-salary TDS under the Income-tax Act, 2025. It must be [**generated in TRACES**](https://busy.in/tds/how-to-file-tds-returns-online/) after the relevant quarterly TDS statement has been filed and processed.

## **What to Do If TDS is Already Deducted**

If TDS has already been deducted, it is not a loss. It is a tax credit. The recipient should:

1.  Check [**Form 26AS**](https://busy.in/tds/form-26as/) , AIS or the relevant updated tax credit statement.
2.  Match the TDS amount with the certificate issued by the deductor.
3.  Report the full interest income in the ITR.
4.  Claim the TDS credit while filing the return.
5.  If TDS is more than the actual tax liability, claim the excess as refund.

For example: Kavita earns ₹60,000 as FD interest and the bank deducts ₹6,000 as TDS. If her final tax liability for the year is only ₹1,000, she can claim ₹5,000 as refund while filing her ITR.

## **Penalties for Non-compliance**

| Default | Consequence |
| --- | --- |
| TDS not deducted | Interest may apply at 1% per month or part of a month |
| TDS deducted but not deposited | Interest may apply at 1.5% per month or part of a month |
| Late TDS statement | Fee under Section 234E may apply |
| Incorrect or non-filed TDS return | Penalty provisions may apply |
| TDS certificate not issued correctly | Penalty risk and deductee credit mismatch |

The Income Tax Department explains that [**failure to deduct tax**](https://busy.in/tds/penalty-late-payment-filing/) may attract 1% interest per month, while failure to deposit tax after deduction may attract 1.5% interest per month.

## **Common Mistakes to Avoid**

-   Do not check each FD separately if the bank aggregates deposits under the same PAN. Review the total interest from the same bank or payer before deciding whether TDS applies.
-   Form 15G, Form 15H or Form 121 should be submitted before interest is credited. If TDS has already been deducted, the usual route is to claim credit or refund while filing the ITR.
-   Resident and non-resident interest payments are handled differently. Before paying interest to an NRI, check Section 195, DTAA documents, TRC, Form 10F and the bank or payer’s compliance process.
-   A mismatch between the TDS certificate and AIS/Form 26AS can delay tax credit. The deductee should ask the deductor to correct PAN, challan or return details before filing the ITR.
-   Businesses paying interest to multiple lenders should not rely only on spreadsheets. Missed thresholds, incorrect PAN details, [**late challans**](https://busy.in/tds/tds-challan/) or wrong return forms can create avoidable compliance issues.

## **Conclusion**

TDS on interest is a routine but sensitive compliance area because it affects banks, businesses, lenders, deposit holders and senior citizens. The most important points are simple: identify the correct payer and payee, apply the [**right threshold**](https://busy.in/tds/section-wise-tds-rate-table-for-fy-2025-26/) , deduct on time, deposit TDS correctly, file the right return and issue the right certificate.

The biggest practical takeaway is that TDS is only a tax credit, not the final tax. Interest income still has to be reported in the ITR. If excess TDS is deducted, the taxpayer can claim a refund. If no TDS is required because the final tax liability is nil, the taxpayer should submit the correct declaration or lower deduction certificate before the interest is credited.

Businesses using [**accounting software**](https://busy.in/accounting-software/) such as BUSY can reduce manual errors by tracking interest payments, TDS rates, due dates, challans, certificates and return data in a more organised way.

## About the author

**Jagdish Prasad**

Jagdish Prasad is a Chartered Accountant with over 5 years of experience. He helps people and businesses with GST, income tax, and HSN codes. Jagdish makes sure his clients follow all tax rules and save money the right way. He also enjoys writing simple articles to help others understand taxes and stay updated with the latest rules.

## Frequently asked questions

### Is TDS deducted only on the interest amount above the threshold?

No. Once the applicable threshold is crossed, TDS is generally calculated on the full eligible interest amount, not only on the excess portion.

### Does every individual need to deduct TDS when paying interest?

No. A normal individual paying personal interest is not automatically required to deduct TDS. Individual and HUF deductor obligations usually depend on specified business or professional audit-linked conditions.

### Does TDS apply separately for each bank?

Yes. The threshold is generally checked payer-wise. If you have FDs in two different banks, each bank will usually check the interest paid by that bank separately. But within the same CBS-enabled bank, interest across branches may be aggregated.

### What if I submit the declaration after TDS is already deducted?

The payer may not reverse TDS already deducted and deposited. You can claim the credit or refund while filing your ITR. For future quarters, submit the declaration before the interest is credited.

### Is FD interest taxable even if no TDS is deducted?

Yes. No TDS does not mean no tax. FD interest is taxable as income from other sources and must be reported in the ITR.

### Should FD interest be reported in ITR if it is already shown in AIS?

Yes. AIS helps you verify reported interest, but you should still check the amount and report the correct interest income in your ITR. If the AIS amount is wrong, compare it with bank statements and interest certificates before filing.

### What should I do if TDS appears in Form 16A/Form 131 but not in AIS or Form 26AS?

Contact the deductor and ask them to check the TDS return, PAN, challan mapping and certificate details. A mismatch can delay or block TDS credit in your ITR.

### Does TDS apply on interest paid to partners by a partnership firm?

No TDS is required under the normal resident interest TDS rule on interest paid by a firm to its partner. However, from 1 April 2025, interest paid by a firm to a partner may attract TDS at 10% under Section 194T if aggregate partner payments, including salary, remuneration, commission, bonus and interest, exceed ₹20,000 during the financial year.

## Related articles

- [Form 13 Is Now Form 128: Lower or Nil TDS Certificate Guide](https://busy.in/tds/form-13-is-now-form-128-lower-or-nil-tds-certificate-guide/)
- [Impact of Non-Compliance on TDS Certificate Issuance: 2025 Update](https://busy.in/tds/impact-of-non-compliance-on-tds-certificate-issuance-2025-update/)
- [Section 194R: TDS on Business Perks, Freebies, and Benefits](https://busy.in/tds/section-194r-tds-on-business-perks-freebies-and-benefits/)
- [Section 194M: TDS Rules for High-Value Payments by Individuals & HUFs](https://busy.in/tds/section-194m-tds-rules-for-high-value-payments-by-individuals--hufs/)
- [Form 12BA: Complete Guide to Salary Perquisites, Applicability, and Tax Implications](https://busy.in/tds/form-12ba-complete-guide-to-salary-perquisites-applicability-and-tax-implications/)
- [Section 194K: TDS on Mutual Fund Dividend and IDCW Income](https://busy.in/tds/section-194k-tds-on-mutual-fund-distributions-demystified/)
- [Income Tax Notice: Key Triggers in TDS Assessments and How Businesses Can Prepare](https://busy.in/tds/income-tax-notice-key-triggers-in-tds-assessments-and-how-businesses-can-prepare/)
- [Importance of TDS in Cash Flow Management for Businesses](https://busy.in/tds/importance-of-tds-in-cash-flow-management-for-businesses/)
- [Section 194DA: Complete Guide to TDS on Insurance Policy Maturity Payouts](https://busy.in/tds/section-194da-complete-guide-to-tds-on-insurance-policy-maturity-payouts/)
- [TDS on Software Purchase in India: A Complete Guide for Businesses](https://busy.in/tds/tds-on-software-purchase-in-india-a-complete-guide-for-businesses/)