Section 194A

Deduction of tax at source - Interest other than ‘Interest on securities’

Notified institutions under section 194A(3)(iii)(f)

Institution

 

Notification

 

 

No.

Date

 

 

 

 

Industrial Credit and Investment Corporation of India Ltd., Bombay

 

 

SO 3200

4-9-1967

Gujarat Co-operative Housing Finance Society Ltd., Ahmedabad

Maharashtra Co-operative Housing Finance Society Ltd., Bombay

 

 

SO 3482

23-9-1967

Andhra Pradesh Industrial Development Corporation Ltd., Hyderabad

 

 

SO 4203

2-12-1967

National Industrial Development Corporation Ltd., New Delhi

 

 

SO 95

4-1-1968

Madras Industrial Investment Corporation Ltd., Madras

 

 

SO 1227

30-3-1968

State Industrial Investment Corporation of Maharashtra Ltd., Bombay

 

 

SO 1854

17-5-1968

National Small Industries Corporation Ltd., New Delhi

 

 

SO 2149

13-6-1968

Kerala State Industrial Development Corporation Ltd., Trivandrum

 

 

SO 2882

24-8-1968

Hindustan Steel Ltd., P.O. Hinoo, Ranchi

 

 

 

 

SO 4222

 

Minerals & Metals Trading Corporation of India Ltd., New Delhi

23-11-1968

State Trading Corporation of India Ltd., New Delhi

 

Amratlal Ravjibhai Parikh, Ahmedabad

 

 

SO 851

22-2-1969

Madhya Pradesh Audyogic Vikas Nigam Ltd., Bhopal

 

 

SO 1516

16-4-19691

Madhya Pradesh State Road Transport Corporation, Bhopal

 

 

SO 1581

21-4-19691

Gujarat Electricity Board, Baroda

 

 

SO 1825

30-4-1969

Hindustan Machine Tools Ltd., Bangalore

 

 

SO 2127

22-5-1969

National Textile Corporation Ltd., New Delhi

 

 

SO2128

25-5-1969

Agricultural Finance Corporation Ltd., Bombay

 

 

SO 2164

22-5-1969

Tea Board Calcutta

 

 

SO 3070

22-7-1969

Gujarat State Textile Corporation Ltd., Ahmedabad

 

 

SO 4712

21-11-1969

Madhya Pradesh State Textile Corporation Ltd., Madhya Pradesh

 

 

SO 825

8-2-1970

Indian Overseas Bank, Madras

 

 

 

 

Indian Bank, Madras

 

 

Allahabad Bank, Calcutta

 

 

Dena Bank, Bombay

 

 

Canara Bank, Bangalore

SO 710

16-2-19702

Union Bank of India, Bombay

 

 

United Commercial Bank, Calcutta

 

 

Bank of Baroda, Bombay

 

 

Punjab National Bank, New Delhi

 

 

Bank of India, Bombay

 

 

Central Bank of India, Bombay

SO 710

16-2-1970

United Bank of India, Calcutta

 

 

Bank of Maharashtra, Poona

 

 

Syndicate Bank, Mysore

 

 

District, Taluka, Nagar and Gram Panchayats constituted under the Gujarat Panchayat Act, 1961, within the State of Gujarat

 

 

SO 828

24-2-1970

Market Committees established under the State Agricultural
Produce Markets Act in various States

 

 

SO 2203

16-6-1970

Any corporation established by a Central, State or Provincial Act

 

 

 

Any company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that Bank

 

 

SO 3489

22-10-1970

Any undertaking or body including a society registered under the Societies Registration Act, 1860 (XXI of 1860) financed wholly by the Government

Cawnpore Anti-Tuberculosis Association, Kanpur

 

 

SO 315(E)

29-3-1972

Amratlal Ravjibhai Parikh, Ahmedabad

 

 

 

 

Amratlal Ravjibhai Parikh, Baroda

SO 362

16-11-1973

Amratlal Ravjibhai Parikh, Anand

 

 

Amratlal Ravjibhai Parikh, Nadiad

 

 

Maharashtra State Textile Corporation Ltd., Bombay

 

 

SO 2479

16-7-1974

Kerala State Textile Corporation Ltd., Cochin

 

 

SO 2677

21-9-1974

Steel Authority of India Ltd., New Delhi

 

 

SO 1247

11-3-1975

Amratlal Ravjibhai Parikh, Prop. Chandrakant

 

 

 

Amratlal Parikh, Baroda

 

 

 

Amratlal Ravjibhai Parikh, Prop. Mukundlal Amratlal Parikh, Nadiad

 

 

SO 1533

11-3-1976

Amratlal Ravjibhai Parikh, Prop. Balkrishna Amratlal Parikh, Anand

Indian Dairy Corporation, Baroda

 

 

SO 1684

11-3-1976

Development Corporation of Konkan Ltd., Bombay

 

 

SO 1685

11-3-1976

Madras Fertilizers Ltd., Madras

 

 

SO 2043

25-5-1979

Tamilnadu Handloom Finance and Trading Corporation Ltd., Madras

 

 

SO 4000

26-11-1979

National Textile Corporation (Delhi, Punjab, Rajasthan) Ltd., New Delhi

 

 

SO 116

26-12-1979

Pratap Spinning, Weaving and Manufacturing Co. Ltd., Amalner

 

 

SO 723

28-2-1980

Housing Development Finance Corpn. Ltd., Bombay

 

 

SO 1724

2-6-1980

Management Development Institute, New Delhi

 

 

SO 1377

22-4-1981

Textile Corporation of Marathwada Ltd., Aurangabad

 

 

SO 3661

11-10-1982

Aspee Agricultural Research and Development Foundation, Bombay

 

 

SO 3779

22-10-1982

Fertilisers & Chemicals Travancore Ltd., Udyogamandal

 

 

SO 2412

18-5-1983

Army Group Insurance Fund, New Delhi

 

 

SO 819

24-2-1984

Air Force Group Insurance Society, New Delhi

 

 

SO 2825

5-6-1985

Naval Group Insurance Fund, New Delhi

 

 

SO 2551

29-5-1986

West Bengal Electronics Industry Development Corpn. Ltd., Calcutta

 

 

SO 621

28-1-1990

West Bengal Industrial Development Corpn. Ltd., Calcutta

 

 

SO 110(E)

15-2-1999

Insurance Regulatory and Development Authority

 

 

SO 644(E)

5-7-2000

Maulana Azad Education Foundation, New Delhi

 

 

SO 252

15-1-2003

Tourism Finance Corporation of India Ltd.

 

 

SO 253

15-1-2003

Notified certificates/deposit schemes under section 194A(3)(vi):

Table

Description of Certificates/Deposit Schemes

    1. Post Office Recurring Deposit Account

    2. Post Office Time Deposit Account (1 year, 2 years, 3 years and 5 years)

    3. Post Office Monthly Income Account

    4. Kisan Vikas Patras

    5. National Savings Certificates (VIII Issue)

    6. Indira Vikas Patras

           Notification : No. SO 72(E), dated 24-1-1992.

Notified schemes under section 194A(3)(vi):

  (1) The Scheme of Post Office (Time Deposits) governed by the Post Office (Time Deposits) Rules, 1970.

  (2) The Scheme of Post Office (Recurring Deposits) governed by the Post Office (Recurring Deposits) Rules, 1970—Notification : No. SO 2878, dated 1-9-1970.

  (3) Investment Deposit Account Scheme, 1986—Notification : No. SO 4247, dated 11-12-1986.

Notified certificates :

Table

Sl. No.

Description of Certificates

1.

National Savings Certificates (V Issue)

2.

National Savings Annuity Certificates

3.

National Savings Certificates (VI Issue)

4.

National Savings Certificates (VII Issue)

5.

Social Security Certificates

Notification : No. SO 2703, dated 1-9-1990.

Point of time for deduction - The material expression in section 194A(1) is ‘at the time of credit of such income in the account of the payee. . .’ When interest is debited to ‘Interest Account’, or any other nominal account, the debit is for a specific amount calculated with reference to the deductor’s liability to a particular creditor in accordance with the terms and conditions of the loan. What is, therefore, important is that the interest payable to a creditor has constructively been credited to the account of the payee; the apparent nomenclature of the particular account in which the credit is made is not conclusive in the matter. The time for deduction would be when the interest is credited. The time for making the payment of the tax deducted at source would reckon from the date of credit of interest made constructively to the account of the payee which would ordinarily be within one week from the last day of the month in which deduction is made.—Circular : No. 288 [F. No. 275/46/79-IT(B)], dated 22-12-1980.

Deposits in joint names - In the case of a deposit in joint names in the absence of any proof to the contrary, both the persons can be treated as payees for the purposes of deduction of tax under section 194A.

Persons responsible for deducting the tax in the absence of any information to the contrary, may aggregate the interest on a joint account with the interest on deposit in the individual’s account who has higher interest income.

The certificate of deduction of tax at source under section 203 will be given to the person in whose name the interest on joint account has been aggregated.

Credit for the payment of tax deducted at source under section 199 will be given to the person in whose name the certificate under section 203 has been issued.

If any objection is taken to the deduction of tax at source in the above manner or it is contended that the joint account holders constitute a separate person and no deduction of tax at source should be made, it will be up to them to point it out to the person paying the interest by leading evidence, i.e., by filing affidavits or statements in the manner laid down in the proviso to sub-section (1) of section 194A.—Circular : No. 256 [F. No. 275/17/79-IT(B)], dated 29-5-1979.

Interest payable on behalf of Government - The provisions of section 194A are equally applicable to persons responsible for paying such interest on behalf of the Government to any person resident in India.—Circular : No. 22/68-IT(B) [F. No. 12/23/68-IT(B)], dated 28-3-1968/13-5-1968 as modified by Letter F. No. 12/23/68-IT(B), dated 7-11-1968.

Discounting of usance bills and hundis - Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier’s account straightaway without waiting for realisation of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such a payment cannot technically be held as including interest and therefore no tax need be deducted at source from such payments by the bank.

Where there is no immediate discounting and the bank merely acting as agent receives on the expiry of the period the payment for the bill from the buyer on behalf of the supplier and credits it to him accordingly, the bank receives interest on behalf of the supplier and the buyer will have to deduct the tax from the interest.—Circular: No. 65 [F. No. 275/79/ITJ], dated 2-9-1971.

Interest paid by consignors to commission agents - Tax will have to be deducted at source in accordance with section 194A from the interest paid by consignors to their commission agents even where such interest is paid under an arrangement whereby the commission agent retains for himself the interest due to him at the time of paying to the consignor the moneys due to him on account of the consignment.—Letter : F. No. 12/12/68-IT(A-II), dated 23-9-1968.

Payments to exempt educational institutions/charitable trusts - So far as an educational institution whose income is exempt from tax under section 10(22) is concerned, the provision of section 194A will not apply to it and no deduction of tax at source from interest is required to be made by the payers. As regards a charitable trust whose income is exempt under section 11, a statement in writing may be made by the institution concerned under section 194A, or the institution may apply for a certificate for deduction at a lower rate or for authorisation of non-deduction at source under section 197.—Letter : F. No. 12/113/68-IT (A-II), dated 28-10-1968.

Interest under Land Acquisition Act - Interest payments under Land Acquisition Act are covered by section 194A.—Circular: No. 526, dated 5-12-1988.

The responsibility for making deduction of tax at source under section 194A, should be that of the Collector (Land Acquisition) or any other authority empowered under the Land Acquisition Act, 1894, to acquire land for a public purpose as laid down by that Act. When the concerned parties, whose land has been acquired, go to the court of law, seeking higher compensation (with interest) and the court allows their claims, the concerned authority which had acquired their land, shall, while paying the compensation deduct tax at source from the amount of interest forming part of the compensation and deposit the remaining amount with the court of law, for disbursement to the successful litigants. The same authority shall also issue the TDS certificates to the concerned parties in the prescribed form—Letter : F. No. 275/109/92-IT(B), dated 21-9-1994.

Interest on time deposits with banks - Only the interest paid/credited by banks on time deposits after 1-10-1991 will be liable for deduction of tax at source at the specified rate. The interest paid/credited during the period 1-4-1991 to 30-9-1991 will be reckoned only for the purpose of seeing whether the aggregate interest paid/credited during the financial year exceeds the limit of Rs. 2,500—Circular: No. 626, dated 12-2-1992.

Interest on cumulative deposits/debentures/bonds - In respect of cumulative deposits/debentures/bonds tax is required to be deducted at source every time the interest is credited in the account books of the payer and is not to be postponed till the maturity of the deposit/debenture/bond—Circular : No. 643, dated 22-1-1993.

Commercial papers/Certificates of Deposits - The difference between the issue price and the face value of the Commercial Papers and the Certificates of Deposits is to be treated as ‘discount allowed’ and not as ‘interest paid’. Hence, the provisions of the Income-tax Act relating to deduction of tax at source are not applicable in the case of transactions in these two instruments.—Circular : No. 647, dated 22-3-1993.

Reinvestment term deposits - In the case of reinvestment term deposit, tax has to be deducted at source at the time of credit of interest to the account of the payee or at the time of payment thereof, whichever is earlier. If credit is given to the account of the payee or payment is made to him annually, the tax may be deducted annually. It is clarified that a credit to interest payable account or suspense account, etc., is also taken as credit to the account of the payee, even though this credit is not reflected separately in the payee’s account—Circular : No. 715, dated 8-8-1995.

Variable deposits - As variable deposits are in the nature of time deposits, tax is deductible at source from interest on such deposits—Circular : No. 715, dated 8-8-1995.

Retrospective renewal of time deposits - When a time deposit is renewed retrospectively, the relevant date for deciding the applicability of section 194A would be that date of renewal. Thus, if the time deposit is renewed on or after 1-7-1995, the tax deduction at source will have to be made from interest paid or credited in respect of such a time deposit—Circular : No. 715, dated 8-8-1995.

Deposits in co-operative banks - A member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1-7-1995 without TDS under section 194A.

A question has also been raised as to whether nominal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank.—Circular : No. 9/2002, dated 11-9-2002.*

Exemption to Sri Sathya Sai Trusts qua cases covered by sections 194A, 194-I & 194K - In the cases of Sri Sathya Sai Central Trust, Shri Sathya Sai Medical Trust and Shri Sathya Sai Institute of Higher Learning, Bangalore, the incomes by way of—

   (i)   interest other than ‘income by way of interest on securities’,

  (ii)   rent, and

(iii)   income in respect of units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India,

may be paid to these Institutions without deduction of income-tax at source. The provisions of this circular shall be applicable for the financial years 2002-03 and 2003-04 (assessment years 2003-04 and 2004-05).—Circular : No. 12/2002, dated 22-11-2002.

Exemption to Sri Ram Chandra Mission qua cases covered by sections 193, 194, 194A and 194K - In the case of Shri Ram Chandra Mission, Chennai, the incomes by way of—

   (i)   Interest on securities,

  (ii)   Dividends,

(iii)   Interest other than ‘income by way of interest on securities’, and

(iv)   Income in respect of units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India,

may be paid to the Mission without deduction of income-tax at source. The provisions of this circular shall be applicable for the financial years 2002-03 and 2003-04 (assessment years 2003-04 and 2004-05)—Circular : No. 2/2003, dated 11-3-2003.

Exemption to World Renewal Spiritual Trust qua cases covered by sections 193, 194A & 194K - In the case of World Renewal Spiritual Trust, Mumbai, the incomes by way of—

   (i)   Interest on securities,

  (ii)   Interest other than ‘income by way of interest on securities’, and,

(iii)   Income in respect of units of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India,

may be paid to the Trust without deduction of income-tax at source. The provisions of this circular shall be applicable for the financial years 2002-03 and 2003-04 (assessment years 2003-04 and 2004-05)—Circular : No. 3/2003, dated 11-3-2003.

Other exemptions - See section 193.