TDS on Interest Other Than Interest on Securities
Interest paid to a resident, other than interest on securities, is generally subject to tax deduction at source when the conditions prescribed by the Income-tax law are met. From 1 April 2026, the applicable provisions are consolidated in Section 393 of the Income-tax Act, 2025. Section 194A of the Income-tax Act, 1961 remains relevant to earlier payment or credit events.
Section 393: TDS on interest under the Income-tax Act, 2025
Section 393 presents non-salary TDS provisions in tables according to the nature of payment and payee. Interest other than interest on securities payable to a resident is covered by the relevant entries in Section 393(1). The payer must identify the correct table item, monetary threshold and rate applicable to the transaction.
When is TDS deducted?
The long-standing principle for this category is the earlier of credit or payment. Accordingly, a payer should examine when the interest is first credited to the payee or otherwise treated as credited under the statutory deeming rule, and when it is actually paid.
Interest payable and suspense accounts
Merely crediting interest to an account described as an "interest payable account", "suspense account" or another name does not necessarily postpone the TDS event. Where the statutory deeming provision applies, such credit is treated as credit to the payee.
Rates and monetary thresholds
The Income Tax Department has clarified that the transition to the Income-tax Act, 2025 primarily reorganises the TDS provisions and does not by itself change TDS policy. The applicable threshold and rate should nevertheless be checked against Section 393, the Finance Act and any amendment or notification in force for the relevant tax year.
Legacy Section 194A of the Income-tax Act, 1961
Section 194A required a person responsible for paying to a resident income by way of interest other than interest on securities to deduct income-tax at the time of credit or payment, whichever was earlier, subject to the section's payer conditions, thresholds and exclusions.
Individuals and Hindu undivided families
The legacy provision generally excluded an individual or Hindu undivided family from the primary deduction obligation unless the prescribed business or professional turnover condition from the immediately preceding financial year was satisfied. The exact turnover test must be applied according to the law in force for the relevant year.
Legacy monetary thresholds
The uploaded historical text records different no-deduction thresholds depending on the payer and payee, including separate rules for banks, co-operative banks, notified post-office deposits, senior citizens and other cases. These figures are period-specific and should not be used for a later year without checking the amendments applicable to that year.
Time deposits
For purposes of the legacy exclusions, "time deposits" included recurring deposits repayable on expiry of fixed periods. Special aggregation rules applied to specified banking, co-operative banking and housing-finance deposits, including rules associated with core banking solutions.
Important exclusions under legacy Section 194A
Section 194A contained several situations in which the basic deduction requirement did not apply. These included, subject to the statutory conditions, certain interest paid or credited to banking companies, specified co-operative societies, statutory financial corporations, insurers and other notified or specified institutions.
Interest credited or paid by a firm to a partner
The legacy section excluded interest credited or paid by a firm to a partner from Section 194A. For current transactions, the corresponding provisions of the Income-tax Act, 2025 must be checked rather than relying on the old section number.
Co-operative societies and co-operative banks
The old provision contained detailed exclusions and exceptions involving co-operative societies, members and co-operative banks, together with turnover and interest thresholds in specified circumstances. The current Section 393 framework should be applied for events on or after 1 April 2026, including amendments applicable to Tax Year 2026-27.
Motor Accident Claims Tribunal interest
The legacy provision separately addressed interest on compensation awarded by a Motor Accidents Claims Tribunal. Current Section 393 contains its own conditions for such interest, and the current rule should be checked for the status of the payee and the applicable tax year.
Zero coupon bonds and specified income
Legacy Section 194A also contained exclusions relating to specified zero coupon bonds and certain other statutory categories of interest. These provisions should be read in the context of the transaction date and the law then in force.
Transition from Section 194A to Section 393
| Event | Applicable provision |
|---|---|
| Earlier of credit or payment occurs on or before 31 March 2026 | Section 194A of the Income-tax Act, 1961, subject to the provisions applicable for that period. |
| Earlier of credit or payment occurs on or after 1 April 2026 | Relevant table item under Section 393 of the Income-tax Act, 2025. |
| Interest credited on 31 March 2026 but paid in April 2026 | The 1961 Act applies because credit occurred first. |
| Interest first credited or paid in Tax Year 2026-27 | The 2025 Act applies and the current Section 393 table item should be quoted in TDS reporting. |
TDS compliance points
Identify the correct law: Determine the earlier date of credit or payment.
Identify the payee: Confirm whether the recipient is resident and whether a special category or exclusion applies.
Check the threshold: Apply the monetary threshold prescribed for the relevant table item and tax year.
Use the current section reference: For transactions from 1 April 2026, use the relevant Section 393 table item rather than old Section 194A in current TDS reporting.
Related Income Tax provisions
PF accumulated balance and interest on securities: Sections 192A and 193
TDS on lottery and horse-race winnings: Sections 194B and 194BB
TDS on payments to contractors: Section 194C
For compliance, use the law, rate, threshold and exemption applicable to the actual tax year and the relevant credit or payment event.