As per section 194A
TDS is to be deducted on Interest Paid By Others (On Loan) at 10%
However, No TDS is to be deducted if annual interest is upto 5000 per annum. If interest is 5001 then TDS is deducted.
TDS SECTIONS
Section |
Description |
Cut off |
Individual/ HUF |
Other |
Section 194A |
Interest Paid By Others (On Loan) |
Rs. 5,000 P.A |
10 % |
10 % |
Changes in 194A Due to Lockdown
However,Due to Lockdown,Government has temporarily reduced Rate by 25%
hence,TDS Rate on Interest Paid By Others(On Loan) is Changed as follows
Current Rate | New Rate (Temporary) | |||||||
TDS on Interest Paid By Others(On Loan) | 10% | 10%*75%=7.5% |
Note - This New Rate is Temporary only if TDS Deducted form 14 May 2020 to 31 Mar 2021
After this old Rate will be applicable
On Interest Expense
We have to deduct TDS @ 10 % on Interest Paid/Payable
Cut off Rs. 5,000 i..eTDS is applicable if Interest paid is more than 5000 in one year
Only Applicable if loan taken from friends and Related cos
TDS not applicable if loan taken from Banks or Financial Institution
Interest on loan
Questions
Q.1
Loan taken from SBI Bank Rs. 5,00,000 @ 12% On 1 April whether TDS to be Deducted
View AnswerInterest paid in 1 Year = 5,00,000 ×12%
= 60,000
Since interest is paid to Bank
No TDS is Applicable .
We don’t have to deduct TDS of Bank
Entries
(1) For loan Taken
Bank A/C Dr. 5,00,000
To SBI Loan A/C 5,00,000
(2) For Interest Exp.
Interest Exp. Dr. 60,000
To SBI Loan A/C 60,000
(3) For Amount Repaid
SBI Loan A/C Dr. 5,60,000
To Bank A/C Dr. 5,60,000
Q.2
Solve Question 1 Assuming loan was Taken From Ravi and Co. ( Rs. 5,00,000 @ 12% for 1 Year)
View AnswerInterest paid = 5,00,000 ×12%
= 60,000
Since Amount Paid Is More Than 5,000 P.A.
TDS @ 10% Applicable
Entries
Entry for Loan Taken
Bank A/C Dr. 5,00,000
To Ravi Co. Loan A/C 5,00,000
Entry For Interest Exp.
Interest Exp. Dr. 60,000
To Ravi Co. Loan A/C 54,000
To TDS 6,000
Entry For Amount Repaid
Ravi & Co Dr. 5,54,000
To Bank 5,54,000
New Amendment 1st April 2019
Section no. | Description | Cutoff | Rate of TDS | Examples |
194A | Interest paid by Banks on FD/RD |
10000 P.A. 40000 P.A. (From 1 April 2019) (For Senior citizens 50000) |
10% | Savings bank interest not covered, only interest on fixed deposits and recurring deposits covered |
On Interest Income
Bank deducts TDS @ 10 %
Cut off is Rs. 40,000 P.A
Only Applicable on Interest Income On Fixed Deposit (FD) and Recurring Deposit
Interest Income Questions
Question 1.
FD Made in HDFC Bank by transferring Money from HDFC Current Account
Of Rs. 100,000 @ 8 % P.A. For 1 year. Whether TDS To be Deducted ? Pass entries
View AnswerInterest Paid in 1 Year
100,000 × 8 % = 8,000
Annual Cut off Is Rs. 40,000
Hence, No TDS to be Deducted by Bank
Entries
(1) Entry for Making FD
HDFC FD A/C Dr. 100000
To HDFC Current A/C 100000
Entry at end of 1 Year
HDFC FD A/C Dr. 8000
To Interest Income 8000
Entry at end of 2 Year
HDFC FD A/C Dr. 8000
To Interest Income 8000
Entry on Maturity
HDFC Current A/C Dr. 116000
To HDFC FD 116000
Question 2.
Solve Question 1 Assuming FD was of Rs. 10,00,000 @ 8 % P.A.
View AnswerInterest Paid In 1 Year
= 10,00,000 × 8 %
= 80,000
Since Interest Paid in One Year Is More than 40,000
Bank Will Deduct TDS @ 10 %
Entries
(1) For Making FD
HDFC FD Dr. 1000000
To HDFC Current A/C 1000000
Entry at end of 1 Year
HDFC FD A/C Dr. 72000
TDS Receivable Dr. 8000
To Interest Income 80000
Entry at end of 2 Year
HDFC FD A/C Dr. 72000
TDS Receivable Dr. 8000
To Interest Income 80000
Entry on Maturity
HDFC Current A/C Dr. 1144000
To HDFC FD A/C 1144000