Clarification regarding extension of applicability to interest on time deposits with banks*
1. According to the provisions of section 194A of the Income-tax Act, 1961, any person, not being an individual or HUF, who is responsible for paying to a resident (for non-residents, the provisions are different and are contained in section 195) any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. These provisions are, however, subject to the exceptions provided in the said section.
2. One such exception, contained in clause (vii) of sub-section (3) of section 194A, hitherto related to interest income credited or paid in respect of deposits with, (i) a banking company to which the Banking Regulation Act, 1949 applies, or (ii) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).
The exemption is available only for deposits and not for loans.
Amit K Khandelia
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