Enlarging the scope for tax deduction on interest income u/s 194A of the Act

Section 194A of the Act governs interest other than interest on securities. Sub-section (1) thereof provides that any person not being individual or HUF who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall deduct income-tax at the rates in force.

Sub-section (3) of said section provides for circumstances in which the provisions of sub-section (1) shall not apply. Clause (i) thereof provides the circumstance where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person to the account of, or to, the payee, does not exceed a certain threshold. Clause (v) provides circumstance to be the income credited or paid by a co-operative society (other than a co-operative bank) to a member or to income credited or paid by a co-operative society to any other co-operative society. Clause (viia) provides circumstance to be the income credited or paid in respect of deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank and deposits (other than time deposits) with a co-operative bank other than a co-operative society or bank engaged in carrying on the business of banking.

In order to extend the scope of this section to interest paid by large co-operative society, it is proposed to amend sub-section (3) and insert proviso to provide that a co-operative society referred to in clause (v) or clause (viia) of said sub-section (3) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if-

(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

(b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees, in any other case.

This amendment will take effect from 1st April, 2020.

[Clause 75]

Extract of Relevant Clauses of Finance Bill, 2020

Clause 75

“Clause 75 of the Bill seeks to amend section 194A of the Income-tax Act relating to interest other than “Interest on securities”.

Sub-section (1) of the said section provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident 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 a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

The proviso to the said sub-section provides that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.

It is proposed to amend the said proviso so as to provide that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under the said section.

Sub-section (3) of the said section provides for circumstances in which the provisions of sub-section (1) shall not apply.

Clause (i) of sub-section (3) provides that sub-section (1) shall not apply where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed certain threshold.

Sub-clause (b) of the said clause provides that threshold to be forty thousand rupees, where the payer is a co-­operative society engaged in carrying on the business of banking. This threshold is fifty thousand rupees, in case the payee is a senior citizen.

Clause (v) of sub-section (3) provides that sub-section (1) shall not apply to such income credited or paid by a co­operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co­operative society to any other co-operative society.

Clause (viia) of sub-section (3) provides that sub-section (1) shall not apply to such income credited or paid in respect of, deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; and deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co­operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking.

It is proposed to amend sub-section (3) so as to insert a proviso to provide that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if––

(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

(b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupee in any other case.

It is further proposed to provide that the Explanation which provides for the meaning of the expression “senior citizen” will be for the purposes of the said sub-section, instead of clause (i) of the said sub-section.

These amendments will take effect from 1st April, 2020.”

Extract of Relevant Amendment Proposed by Finance Bill, 2020

75. Amendment of section 194A.

In section 194A of the Income-tax Act,––

(I) in sub-section (1), in the proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall
be substituted;

(II) in sub-section (3),––

(A) in clause (i), the Explanation shall be omitted;

(B) after clause (xi) and before Explanation 1, the following proviso shall be inserted, namely:––

“Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if–

(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.”;

(C) after Explanation 1, the following Explanation shall be inserted, namely:–

‘Explanation 2.–– For the purposes of this sub-section, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.’.

Source- Finance Bill 2020 / Union Budget 2020-21

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2 Comments

  1. Vijay Thakkar says:

    In case of interest paid by a Co-operative Bank to a Co-operative Credit Society [whose turnover is less than Rs. 50 crores] and the said co-operative credit society is Nominal Member of Co-operative Bank, whether the provisions of Section 194A will apply?

  2. Subhash Auti, > M. Com. Govt. Certified Auditor says:

    Pl. let me know whether Housing Society income/receipt of purely maintenance, transfer fees, non occupancy, etc are exempted or not for Income Tax ?

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