Deduction of income-tax at source from interest other than ``interest on securities''--Section 194A of the Income-tax Act, 1961--Extension of applicability to interest on time deposits with banks, etc.--Regarding
Circular No. 617
Dated 22/11/1991
4. The effect of the aforesaid change is that income-tax shall now be deductible at source from the interest income on time deposits with (i) a banking company, or (ii) a co- operative society engaged in carrying on the business of banking, other than a co-operative land mortgage bank, a co-operative land development bank, primary agricultural credit society or a primary credit society. Deduction of tax at source will have to be made from such interest income credited or paid on or after the 1st October, 1991. In this connection, the following points may be noted:--
(a) Deduction of tax is required to be made at the time of credit of interest income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
(b) Where the interest is credited in the books of account of the payee, to any account, whether called "Interest payable account" or "suspense account" or by any other name, such crediting shall be deemed to be credit of such interest to the account of the payee and tax will have to be deducted at source. Thus, in the case of cumulative time deposits where interest is credited periodically but the payment to the depositor is made only at the time of maturity, tax will have to be deducted at source every time the credit of interest is made in the account books of the payer/bank.
(c) In the case of cumulative time deposits made prior to 1-4-1991, no tax is required to be deducted in respect of interest income which relates to the period prior to 1-4-1991.
(d) The new provisions are not applicable to interest on savings bank accounts.
Hence, TDS is not to be deducted by Banks though it is a taxable income
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