Section 194A of ITA, 1961 : Section 194A: Interest Other Than ''Interest On Securities''

Explanation using Example

Imagine a scenario where ABC Pvt. Ltd. is a company that provides a fixed deposit scheme to its customers. Mr. Sharma, a resident of India, has invested in such a fixed deposit and is supposed to receive interest income of INR 45,000 during the financial year. As per Section 194A of the Income-tax Act, 1961, ABC Pvt. Ltd. is required to deduct tax at source (TDS) on the interest income paid to Mr. Sharma because the interest income exceeds the threshold of INR 40,000 for non-senior citizens.

However, if Mr. Sharma were a senior citizen, the threshold for TDS deduction would be INR 50,000. In that case, since his interest income is INR 45,000, ABC Pvt. Ltd. would not deduct TDS on the interest payment made to him.

Furthermore, if the interest income was to be paid to a banking company or a co-operative society engaged in banking, the provisions of TDS under Section 194A would not apply, as per the specified exceptions.