Tds on local authority
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
28 January 2013
IS MUNCIPAL BOARD IS EXEMPT FROM TDS ON RECEIPT OF INCOMES BY WAY OF INTEREST ON FD'S ETC. IN REFERENCE TO SECTION 196 (i) OF I. T. ACT, 1961.
IS MUNCIPALITY OR LOCAL AUTHORITY AS MUNICIPAL BOARD IS GOVERNMENT AS PER SECTION 196(i) OF I.T.ACT, 1961
IS MUNCIPALITY OR LOCAL AUTHORITY AS MUNICIPAL BOARD IS GOVERNMENT AS PER SECTION 196(i) OF I.T.ACT, 1961
CA PARAS BAFNA
(Expert)
28 January 2013
Yes sir, Municipal Corporations are incorporated under The Bombay Provincial Municipal Corporation Act 1949 enacted by the Govt.
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Message likes :
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Querist : Anonymous
Querist :
Anonymous
(Querist)
29 January 2013
Section 196(i) OF I. T. ACT 1961, "GOVERNMENT"
Please give reply in details, regarding rajathan municipal act, 1959. MUNICIPILITY IS GOVERNMENT OR NOT
Please give reply in details, regarding rajathan municipal act, 1959. MUNICIPILITY IS GOVERNMENT OR NOT
27 July 2025
Great question! Let’s clarify the TDS exemption status of **Municipal Boards/Local Authorities** under **Section 196(1) of the Income Tax Act, 1961**.
---
### 1. **Section 196(1) – TDS Exemption on Interest Payment**
* **Section 196(1)** grants **exemption from TDS** on interest payments made to the **Government**.
* Here, **Government** generally means the **Central Government or State Government**.
---
### 2. **Is Municipal Board / Local Authority considered “Government”?**
* **Municipal Corporations / Municipal Boards / Local Authorities** are **local self-government bodies** constituted under respective **State Municipal Acts** (e.g., Bombay Provincial Municipal Corporation Act, 1949 or Rajasthan Municipal Act, 1959).
* These bodies are **local statutory authorities** created by **State Governments**, but they are **not the State Government itself**.
---
### 3. **Legal Position and CBDT Circulars**
* The Income Tax Department and Courts have generally held that **Municipal Corporations / Local Authorities** are **not treated as “Government” under Section 196(1)**.
* Therefore, **TDS is applicable on interest paid to Municipal Boards or Local Authorities on fixed deposits or other investments**, and exemption under Section 196(1) will **not apply** to them.
* Such Municipal bodies are considered as **separate legal entities** (local authorities) and not the State Government itself.
---
### 4. **Relevant Example: Rajasthan Municipal Act, 1959**
* Municipalities under this Act are **local authorities** and **not the State Government**.
* Hence, **interest income earned by Municipal Boards under FD etc. is subject to TDS**, unless a specific exemption is provided elsewhere.
---
### 5. **Summary:**
| Entity | Considered Government for TDS exemption? | TDS Applicable on Interest? |
| ---------------------------------------------------------------------------- | ---------------------------------------- | --------------------------- |
| Central/State Government | Yes | No |
| Municipal Board / Local Authority (e.g. under Rajasthan Municipal Act, 1959) | No | Yes |
---
### **Conclusion:**
**Municipal Boards and Local Authorities are not “Government” under Section 196(1) of the Income Tax Act. Therefore, they are not exempt from TDS on interest income like FD interest. TDS must be deducted when paying interest to them.**
---
If you want, I can also help draft a formal note or refer you to specific CBDT circulars or case laws supporting this. Would that help?
---
### 1. **Section 196(1) – TDS Exemption on Interest Payment**
* **Section 196(1)** grants **exemption from TDS** on interest payments made to the **Government**.
* Here, **Government** generally means the **Central Government or State Government**.
---
### 2. **Is Municipal Board / Local Authority considered “Government”?**
* **Municipal Corporations / Municipal Boards / Local Authorities** are **local self-government bodies** constituted under respective **State Municipal Acts** (e.g., Bombay Provincial Municipal Corporation Act, 1949 or Rajasthan Municipal Act, 1959).
* These bodies are **local statutory authorities** created by **State Governments**, but they are **not the State Government itself**.
---
### 3. **Legal Position and CBDT Circulars**
* The Income Tax Department and Courts have generally held that **Municipal Corporations / Local Authorities** are **not treated as “Government” under Section 196(1)**.
* Therefore, **TDS is applicable on interest paid to Municipal Boards or Local Authorities on fixed deposits or other investments**, and exemption under Section 196(1) will **not apply** to them.
* Such Municipal bodies are considered as **separate legal entities** (local authorities) and not the State Government itself.
---
### 4. **Relevant Example: Rajasthan Municipal Act, 1959**
* Municipalities under this Act are **local authorities** and **not the State Government**.
* Hence, **interest income earned by Municipal Boards under FD etc. is subject to TDS**, unless a specific exemption is provided elsewhere.
---
### 5. **Summary:**
| Entity | Considered Government for TDS exemption? | TDS Applicable on Interest? |
| ---------------------------------------------------------------------------- | ---------------------------------------- | --------------------------- |
| Central/State Government | Yes | No |
| Municipal Board / Local Authority (e.g. under Rajasthan Municipal Act, 1959) | No | Yes |
---
### **Conclusion:**
**Municipal Boards and Local Authorities are not “Government” under Section 196(1) of the Income Tax Act. Therefore, they are not exempt from TDS on interest income like FD interest. TDS must be deducted when paying interest to them.**
---
If you want, I can also help draft a formal note or refer you to specific CBDT circulars or case laws supporting this. Would that help?
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