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Section 194A thresholds differ sharply by source — ₹5,000 per year for NBFC, cooperative society, and inter-company loan interest versus ₹40,000 per year for bank FD interest (₹1,00,000 for senior citizens from April 1, 2025). Uniform threshold configurations in ERP cause missed TDS on NBFC deposits and unexplained Form 26AS credits that do not map to receivables.
Tag each interest source in the investment master with its correct threshold (₹5,000 or ₹40,000/₹1,00,000) and 10 percent rate. Apply TDS on accrual or payment, whichever is earlier, and match Form 26AS quarterly entries against the interest accrual schedule rather than the receipt date. Handle inter-company loans with the borrower as deductor and the parent or lender as the Form 26AS credit recipient.
Investment master with source-type threshold mapping. Accrual-based TDS recognition rule. Inter-company loan configuration identifying deductor entity in a conglomerate.
Correct 194A TDS on every interest source, no UNEXPLAINED Form 26AS credits from missed NBFC deductions, and reconciled quarter-by-quarter matching between interest accruals and TRACES credits.
TDS under section 194A on interest income is one of the more structurally unusual provisions in India’s TDS framework: unlike most TDS sections where the payer is the one deducting, inter-company loan scenarios require the borrower — who is paying interest, not receiving it — to deduct TDS and deposit it before paying the net amount to the lender. Finance teams in large conglomerates and businesses borrowing from NBFCs must track this obligation carefully. This guide explains the threshold structure, applicable scenarios, and reconciliation steps.
2026 Migration Update — The senior citizen bank interest threshold under Section 194A was raised from ₹50,000 to ₹1,00,000 with effect from 1 April 2025, which shifts when TDS starts applying on FD and RD interest for depositors aged 60 and above. Section 194A maps to a new numeric payment code under the Income Tax Act 2025, effective 1 April 2026, so FY 2026-27 ledgers will carry both legacy and new identifiers. See the rate-by-date reconciliation guide and the payment codes 1001–1092 reference.
What Section 194A Is
Section 194A requires any specified entity to deduct TDS on interest paid or credited to a resident, other than interest on bank savings accounts. The rate is 10%. The threshold differs by source:
- ₹5,000 per year for interest from NBFCs, cooperative societies, inter-company loans, and security deposit interest paid by landlords
- ₹40,000 per year for interest on FDs with scheduled banks (₹50,000 for senior citizens aged 60 and above)
TDS is triggered on credit or payment, whichever is earlier. For quarterly interest crediting — common with bank and NBFC FDs — TDS is deducted each quarter when interest is credited to the account.
Where Reconciliation Issues Arise
NBFC vs Bank Threshold Confusion
The ₹5,000 threshold for NBFC interest versus the ₹40,000 threshold for bank FD interest is a persistent source of configuration errors. Companies that invest surplus funds in both bank FDs and NBFC FDs sometimes have their ERP set with a uniform ₹40,000 threshold, causing the NBFC deduction to be skipped until the interest exceeds ₹40,000. The NBFC, independently, deducts TDS at ₹5,001 and reports it in Form 26AS. The company’s books show no TDS ledger entry for the NBFC, creating an UNEXPLAINED credit in Form 26AS that does not map to any receivable.
Inter-Company Loan TDS Direction
In a holding company structure where the parent extends a loan to a subsidiary, the subsidiary (borrower) is the deductor under Section 194A — not the parent (lender). The subsidiary deducts 10% TDS on interest before remitting the net interest to the parent. The parent’s Form 26AS shows the TDS credit under the subsidiary’s TAN. Finance teams at the parent that do not track inter-company TDS receivables separately from external interest income often miss these entries at the time of ITR filing.
Accrual vs Actual Credit Timing
Companies that follow mercantile accounting recognise interest income on an accrual basis — monthly or quarterly — while the bank or NBFC may credit interest and deduct TDS on a different schedule. A company recognising ₹8,000 interest per quarter (₹32,000 annually) in its books may see TDS deducted by the NBFC in Q2 and Q4 only if the NBFC uses a semi-annual credit cycle. The two-entry Form 26AS pattern does not match the four-entry accrual ledger without aggregation logic.
Section 194A Threshold and Scenario Reference
| Interest Source | Rate | Annual Threshold | Deductor |
|---|---|---|---|
| Scheduled bank — FD | 10% | ₹40,000 (₹50,000 seniors) | Bank |
| NBFC — FD or recurring deposit | 10% | ₹5,000 | NBFC |
| Inter-company loan (subsidiary to parent) | 10% | ₹5,000 | Borrower (subsidiary) |
| Cooperative society loan | 10% | ₹5,000 | Cooperative society |
| Landlord paying interest on security deposit | 10% | ₹5,000 | Landlord |
| Bank savings account | Not applicable | — | Exempt under 194A(3)(i) |
Reconciling 194A in Practice
For a company with 3 bank FDs, 2 NBFC FDs, and 4 inter-company loans, Form 26AS may show up to 9 separate Section 194A entries per year, each with a different deductor TAN and a different credit schedule. The primary match keys are deductor TAN, section code (194A), and interest credit date. Amount matching is more reliable for 194A than for other sections because interest amounts are calculated at fixed rates on known principal balances — there is less variance from rounding or rate disputes.
TDS reconciliation software that applies TAN-based grouping before date and amount matching resolves the multi-source 194A reconciliation efficiently. In TransactIG’s multi-pass matching model, the counterparty signal (TAN) and date proximity signal identify the correct deductor for each interest entry before comparing amounts, reducing manual intervention for the accrual-timing mismatch to a flagged PARTIAL_PAYMENT variance rather than an unmatched exception.
For group-level treasuries managing inter-company loan books across 10 or more entities, reconciliation software India-wide deployment creates a single view of all 194A deductions across subsidiaries, eliminating the need for each entity’s finance team to independently reconcile inter-company interest TDS.
Section 194A thresholds, exemptions, and the distinction between bank and non-bank interest are published on the Income Tax India e-filing portal.
New Income Tax Act 2025: Section 194A Remapping
Effective April 1, 2026, Section 194A is replaced by Section 393(1), Table Serial No. 5 under the Income Tax Act 2025. Unlike most other sections, 194A splits into three distinct payment codes with different thresholds:
| Payer Type | New Reference | Code | Threshold |
|---|---|---|---|
| Banks/post offices — senior citizens | 393(1) Sl.5(ii).D(a) | 1020 | ₹1,00,000 |
| Banks/post offices — others | 393(1) Sl.5(ii).D(b) | 1021 | ₹50,000 |
| Non-banking payers | 393(1) Sl.5(iii) | 1022 | ₹10,000 |
What changes for reconciliation
- Three payment codes (1020/1021/1022) replace the single “194A” reference — reconciliation systems must map each payer type correctly
- Senior citizen threshold doubles from ₹50,000 to ₹1,00,000, reducing TDS obligations for banks on smaller deposits
- TDS returns shift from Form 26Q to Form 140; certificates from Form 16A to Form 131
- Correction statements for old-Act periods limited to 2 years under Section 397(3)(f)