Section 194A TDS on interest: Revised thresholds post Finance Act 2025
Finance Act 2025 raised Section 194A TDS thresholds for FY 2025-26: Rs 1 lakh for senior citizens, Rs 50,000 for others, Rs 10,000 for non-bank payers. How to claim credit and avoid a 143(1) notice.
If you keep money in a bank fixed deposit, a recurring deposit or a post-office time deposit, the interest it earns does not reach your account untouched. Under Section 194A of the Income Tax Act 1961, the payer must deduct tax at source (TDS) at 10% before crediting interest once your annual interest crosses a fixed threshold. The Finance Act 2025, effective 1 April 2025, raised those thresholds sharply for FY 2025-26 (assessment year 2026-27): senior citizens now enjoy a Rs 1,00,000 limit per bank, ordinary depositors Rs 50,000, and non-bank payers Rs 10,000. This guide explains exactly when the deduction bites, walks through a worked example, and flags the mismatches that trigger a Section 143(1) intimation. You can model the impact on your own deposits using our TDS calculator.
What the Section Says
Section 194A governs TDS on "interest other than interest on securities". In plain English, it covers interest paid by banks, co-operative banks, post offices, companies accepting public deposits and non-banking financial companies (NBFCs) on fixed deposits, recurring deposits and loans. Interest on securities such as bonds and debentures falls under Section 193, and savings-bank interest is specifically excluded from 194A altogether.
The standard deduction rate is 10% of the gross interest credited or paid, whichever is earlier. There is no surcharge or cess added to TDS on resident interest, so the headline rate stays 10%. The one exception is the absence of a PAN: under Section 206AA, if you do not furnish a valid PAN to the payer, TDS jumps to 20%. The deduction applies to the full interest amount once the threshold is breached, not merely on the excess over the threshold.
The Finance Act 2025 revised the thresholds with effect from 1 April 2025. The table below sets out the old and new limits.
| Payer category | Threshold up to 31 Mar 2025 | Threshold from 1 Apr 2025 |
|---|---|---|
| Bank / co-op bank / post office (senior citizen, 60+) | Rs 50,000 | Rs 1,00,000 |
| Bank / co-op bank / post office (others) | Rs 40,000 | Rs 50,000 |
| All other payers (company / NBFC deposits) | Rs 5,000 | Rs 10,000 |
Crucially, the bank threshold is reckoned per bank, aggregated across all branches because of core banking, but not aggregated across different banks. A depositor with Rs 40,000 of interest at one bank and Rs 40,000 at another faces no TDS at either, even though total interest is Rs 80,000. The statutory text is published by the Income Tax Department at incometax.gov.in and the consolidated bare Act sits on indiacode.nic.in.
If your total income for the year is below the taxable limit, you can pre-empt the deduction by filing a self-declaration: Form 15G for non-senior depositors and Form 15H for senior citizens. These are filed with each payer at the start of the financial year, ideally in April 2025 for FY 2025-26, and stop the bank from deducting TDS in the first place.
Worked Example
Consider Mrs Lakshmi Rao, a 67-year-old retired schoolteacher in Pune. As a senior citizen she holds Rs 18,00,000 across fixed deposits with a single bank, earning 7.5% per annum, which generates Rs 1,35,000 of interest in FY 2025-26.
Her interest of Rs 1,35,000 exceeds the senior-citizen threshold of Rs 1,00,000, so Section 194A applies. The bank deducts 10% TDS on the full Rs 1,35,000, not just on the Rs 35,000 above the threshold. The deduction works out to Rs 13,500, which appears in her Form 26AS and Annual Information Statement (AIS). You can verify the deducted amount against your statement using the glossary entry for Form 26AS.
| Step | Computation | Amount |
|---|---|---|
| Total FD interest (FY 2025-26) | Rs 18,00,000 x 7.5% | Rs 1,35,000 |
| Senior-citizen threshold (194A) | Finance Act 2025 | Rs 1,00,000 |
| Threshold breached? | Rs 1,35,000 > Rs 1,00,000 | Yes |
| TDS at 10% on gross interest | Rs 1,35,000 x 10% | Rs 13,500 |
| Net interest credited | Rs 1,35,000 - Rs 13,500 | Rs 1,21,500 |
Now suppose Mrs Rao's only income is this Rs 1,35,000 of interest. Under the new tax regime the basic exemption limit is Rs 4,00,000 for FY 2025-26, so her tax liability is nil. Because no tax is finally payable, she could have filed Form 15H in April 2025 and avoided the Rs 13,500 deduction entirely, preserving her cash flow through the year. Having not filed it, she must instead claim the Rs 13,500 as a refund when she files her ITR.
Separately, if Mrs Rao opts for the old tax regime, she can claim a deduction of up to Rs 50,000 on this deposit interest under Section 80TTB, available exclusively to resident senior citizens. A non-senior depositor gets no 80TTB benefit and only a Rs 10,000 deduction under Section 80TTA, which applies to savings-account interest, not fixed-deposit interest. To compare which regime leaves her better off, run the numbers through our old vs new regime calculator and the income-tax calculator.
Common Mistakes
These are the recurring errors that surface during Section 143(1) processing and ITR scrutiny.
Treating TDS deduction as final tax. The 10% deducted under Section 194A is not your final liability. If your slab rate is 20% or 30%, you still owe the balance; if your liability is nil, you must claim a refund. Many depositors wrongly assume that because the bank deducted tax, no ITR is needed. Interest income is fully taxable under "Income from Other Sources" regardless of TDS.
Forgetting to file Form 15G or 15H in time. The declaration must be submitted at the start of the financial year, not after TDS has already been deducted. A Form 15H filed in January 2026 cannot reverse TDS deducted in the April-to-December 2025 quarters; that money can only be recovered as a refund through the ITR.
Filing Form 15G or 15H when you are not eligible. Form 15G requires that your estimated total income for the year is below the basic exemption limit. A false declaration to dodge TDS is an offence under Section 277, which can attract prosecution. Form 15H is gentler: a senior citizen may file it whenever the final tax payable is nil, even if gross interest exceeds the exemption limit, because of the Section 87A rebate.
Mismatch between Form 26AS and the ITR. This is the single most common trigger for a Section 143(1)(a) intimation. If you report Rs 1,20,000 of interest but Form 26AS and the AIS show Rs 1,35,000, the system flags the Rs 15,000 gap and adds it back. Always reconcile the gross interest, before TDS, and not the net amount credited, against your AIS.
Splitting deposits across banks to dodge TDS but ignoring tax. Spreading deposits so each bank stays under Rs 50,000 avoids TDS, but it does not make the interest tax-free. The full aggregate interest across every bank remains taxable and must be reported in the ITR.
How to Reconcile and Claim Credit
Before filing, download your Form 26AS and AIS from the income-tax portal and tally every entry against your bank interest certificates for FY 2025-26. Report the gross interest under "Income from Other Sources", then claim the TDS shown in 26AS as a credit against your final liability under Section 199. If TDS exceeds your liability, the surplus is refunded with interest under Section 244A at 0.5% per month from 1 April 2026 until the refund is granted, provided the ITR is filed on time. For depositors who expect to owe more than the TDS already deducted, advance-tax instalments may be due; see our explainer on advance tax to avoid Section 234B and 234C interest.
FAQ
Does Section 194A apply to savings-bank interest?
No. Section 194A specifically excludes interest on savings-bank accounts, so banks never deduct TDS on it. However, savings interest is still taxable, with a deduction of up to Rs 10,000 under Section 80TTA for non-seniors or up to Rs 50,000 under Section 80TTB for senior citizens in the old regime.
Is the Rs 1,00,000 senior-citizen threshold per bank or across all banks?
It is per bank, aggregated across all branches of that bank. A senior citizen with Rs 90,000 interest at one bank and Rs 90,000 at another faces no TDS at either, because neither individually crosses Rs 1,00,000. The total Rs 1,80,000 remains fully taxable and must be reported in the ITR.
What happens if I do not give my PAN to the bank?
Under Section 206AA, the absence of a valid PAN raises the TDS rate from 10% to 20%. Additionally, no Form 15G or 15H is valid without a PAN, so always ensure your PAN is correctly linked to every deposit account.
Can a senior citizen always file Form 15H?
A senior citizen can file Form 15H whenever the final tax on total income is nil after the Section 87A rebate, even if gross interest exceeds the basic exemption limit. For FY 2025-26 the new-regime rebate makes income up to Rs 12,00,000 effectively tax-free, widening eligibility considerably.
When was the Rs 50,000 ordinary threshold introduced?
The Finance Act 2025 raised the bank threshold for non-senior depositors from Rs 40,000 to Rs 50,000 with effect from 1 April 2025, applicable to interest credited during FY 2025-26. The earlier Rs 40,000 limit applied up to 31 March 2025.
How do I recover TDS if my income is below the taxable limit?
File your income-tax return for AY 2026-27 reporting the gross interest and claiming the TDS credit shown in Form 26AS. Any excess is refunded under Section 244A, typically within weeks of e-verification, with interest at 0.5% per month.
Does TDS under 194A include cess or surcharge?
No. TDS on resident interest under Section 194A is a flat 10% of gross interest with no surcharge or health-and-education cess added at source. Surcharge and the 4% cess apply only at the final assessment stage when you compute total tax in your ITR.
Sources & Citations
- Income Tax Act 1961 — Section 194A — Income Tax Department
- Income-tax Act 1961, consolidated bare Act — India Code, Government of India
Frequently Asked Questions
Does Section 194A apply to savings-bank interest?
No. Section 194A specifically excludes interest on savings-bank accounts, so banks never deduct TDS on it. Savings interest is still taxable, with a deduction of up to Rs 10,000 under Section 80TTA for non-seniors or up to Rs 50,000 under Section 80TTB for senior citizens in the old regime.
Is the Rs 1,00,000 senior-citizen threshold per bank or across all banks?
It is per bank, aggregated across all branches of that bank but not across different banks. A senior citizen with Rs 90,000 interest at one bank and Rs 90,000 at another faces no TDS at either. The total Rs 1,80,000 remains fully taxable and must be reported in the ITR.
What happens if I do not give my PAN to the bank?
Under Section 206AA, the absence of a valid PAN raises the TDS rate from 10% to 20%. No Form 15G or 15H is valid without a PAN, so ensure your PAN is correctly linked to every deposit account.
Can a senior citizen always file Form 15H?
A senior citizen can file Form 15H whenever the final tax on total income is nil after the Section 87A rebate, even if gross interest exceeds the basic exemption limit. For FY 2025-26 the new-regime rebate makes income up to Rs 12,00,000 effectively tax-free.
When was the Rs 50,000 ordinary threshold introduced?
The Finance Act 2025 raised the bank threshold for non-senior depositors from Rs 40,000 to Rs 50,000 with effect from 1 April 2025, applicable to interest credited during FY 2025-26. The earlier Rs 40,000 limit applied up to 31 March 2025.
How do I recover TDS if my income is below the taxable limit?
File your income-tax return for AY 2026-27 reporting the gross interest and claiming the TDS credit shown in Form 26AS. Any excess is refunded under Section 244A, typically within weeks of e-verification, with interest at 0.5% per month.
Does TDS under 194A include cess or surcharge?
No. TDS on resident interest under Section 194A is a flat 10% of gross interest with no surcharge or health-and-education cess added at source. Surcharge and the 4% cess apply only at the final assessment stage in your ITR.