Our co-operative society pays interest to members, to other co-operative societies and to outsiders. Which of these payments carry a TDS obligation under s.194A?
Clause (v) of s.194A(3) exempts two things and must be read as two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words 'other than a co-operative bank' were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015, so from that date a co-operative bank must deduct tax on interest on time deposits of its members; the second limb was not amended and carries no exclusion of a co-operative bank, so interest paid by any co-operative society, including a co-operative bank, to another co-operative society remains outside sub-section (1).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2015-06-01, reported as Words 'other than a co-operative bank' inserted in the first limb of s.194A(3)(v) by the Finance Act 2015 with effect from 1 June 2015; CBDT Circular No. 19 of 2015 dated 27 November 2015 (F.No.142/14/2015-TPL), Explanatory Notes to the provisions of the Finance Act 2015. It bears on section 194A(3)(v), section 194A(3)(viia), section 194A(3)(i), section 194A(1), section 2(19), section 201(1), section 201(1A), section 80P(2)(d) of the Income Tax Act 1961, in TDS Defaults and Co-operative Societies matters.
Almost every s.201 order against a co-operative body turns on which limb the payment falls in, and the department's standard reliance is on paragraph 42.5 of CBDT Circular No. 19 of 2015, which deals only with the first limb. Paragraph 42.7 of the same circular states in terms that the exemption for interest paid by one co-operative society to another continues to apply to a co-operative bank, so that a co-operative bank is not required to deduct tax on interest on a time deposit of a depositor that is a co-operative society. Clause (viia) is the separate, and often overlooked, protection: sub-clause (a) exempts interest on deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, without any reference to membership, and paragraph 42.6 of the circular confirms that this survived the 2015 amendment; sub-clause (b) exempts interest on deposits other than time deposits made on or after 1 July 1995 with a co-operative society engaged in banking that is not one of those in sub-clause (a). Finally, eligibility to deduction under s.80P is beside the point: s.80P operates at the assessment of the payee, s.194A at the transaction of the payer.
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Clause (v) of s.194A(3), as reproduced in the Bombay High Court judgment, reads: 'To such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society', with an Explanation that for the purposes of that clause 'co-operative bank' shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) 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 (b) deposits, other than time deposits made on or after 1 July 1995, with a co-operative society other than one referred to in sub-clause (a) that is engaged in carrying on the business of banking. Paragraph 42.5 of Circular No. 19 of 2015 explains that the exemption from deduction on interest paid to members by a co-operative society shall not apply to payment of interest on time deposits by co-operative banks to their members, that the amendment is effective from the prospective date of 1 June 2015, and that a co-operative bank was not required to deduct tax on interest on members' time deposits paid or credited before that date. Paragraph 42.6 states that the existing exemption under clause (viia)(a) continues to apply, so that those societies and banks are not required to deduct tax on interest paid to depositors even after the amendment. Paragraph 42.7 states that the existing exemption under clause (v) from deduction of tax on interest paid by a co-operative society to another co-operative society shall continue to apply to the co-operative bank, and therefore a co-operative bank shall not be required to deduct tax from the payment of interest on a time deposit to a depositor being a co-operative society.
Statutory position — no holding is asserted; this entry reproduces statutory text. Clause (v) of s.194A(3) exempts two things and is read in two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words "other than a co-operative bank" were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015; the second limb was not amended and carries no exclusion of a co-operative bank. The Explanation to the clause gives "co-operative bank" the meaning assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, and (b) deposits other than time deposits made on or after 1 July 1995 with a co-operative society, other than one referred to in sub-clause (a), engaged in carrying on the business of banking. Paragraphs 42.5, 42.6 and 42.7 of CBDT Circular No. 19 of 2015 dated 27 November 2015 explain the amendment, the survival of the clause (viia)(a) exemption, and the continuance of the second-limb exemption for a co-operative bank paying interest to a depositor that is a co-operative society.
The Bombay High Court held that the legislature consciously refrained from repeating in the second limb of clause (v) the exclusion it had spelt out in the first, that the inherent legal character of a co-operative bank as a co-operative society is not extinguished by its banking licence, and that in a taxing statute the Court cannot read in words the legislature has not used. That construction is fortified by paragraph 42.7 of the circular. The Madras High Court, construing the same clause before the amendment, had earlier held that none of the State or central enactments — the Tamil Nadu Co-operative Societies Act 1983, the Multi-State Co-operative Societies Act 2002, the Reserve Bank of India Act 1934, the Banking Regulation Act 1949 and the NABARD Act 1981 — draws a distinction between a co-operative society engaged in carrying on banking business and a co-operative bank, and that the 2015 amendment, being made to remove an anomaly, could only be prospective.
Further, the existing exemption provided under section 194A(3)(v) of the Income-tax Act from deduction of tax from interest paid by a co-operative society to another co-operative society shall continue to apply to the co-operative bank and, therefore, a co-operative bank shall not be required to deduct tax from the payment of interest on time deposit to a depositor, being a co-operative society.
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Handle my notice → Ask a CA on WhatsAppClause (v) of s.194A(3) exempts two things and must be read as two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words 'other than a co-operative bank' were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015, so from that date a co-operative bank must deduct tax on interest on time deposits of its members; the second limb was not amended and carries no exclusion of a co-operative bank, so interest paid by any co-operative society, including a co-operative bank, to another co-operative society remains outside sub-section (1). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194A(3)(v), section 194A(3)(viia), section 194A(3)(i), section 194A(1), section 2(19), section 201(1), section 201(1A), section 80P(2)(d) of the Income Tax Act 1961. It is reported as Words 'other than a co-operative bank' inserted in the first limb of s.194A(3)(v) by the Finance Act 2015 with effect from 1 June 2015; CBDT Circular No. 19 of 2015 dated 27 November 2015 (F.No.142/14/2015-TPL), Explanatory Notes to the provisions of the Finance Act 2015. Almost every s.201 order against a co-operative body turns on which limb the payment falls in, and the department's standard reliance is on paragraph 42.5 of CBDT Circular No. 19 of 2015, which deals only with the first limb. Paragraph 42.7 of the same circular states in terms that the exemption for interest paid by one co-operative society to another continues to apply to a co-operative bank, so that a co-operative bank is not required to deduct tax on interest on a time deposit of a depositor that is a co-operative society. Clause (viia) is the separate, and often overlooked, protection: sub-clause (a) exempts interest on deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, without any reference to membership, and paragraph 42.6 of the circular confirms that this survived the 2015 amendment; sub-clause (b) exempts interest on deposits other than time deposits made on or after 1 July 1995 with a co-operative society engaged in banking that is not one of those in sub-clause (a). Finally, eligibility to deduction under s.80P is beside the point: s.80P operates at the assessment of the payee, s.194A at the transaction of the payer. If it applies to you, the first step is this: Classify each payment by payee before anything else: a member, another co-operative society, or neither. Then ask whether the payer is a co-operative bank as defined in Part V of the Banking Regulation Act, 1949 — the Explanation to clause (v) adopts that meaning.
Clause (v) of s.194A(3), as reproduced in the Bombay High Court judgment, reads: 'To such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society', with an Explanation that for the purposes of that clause 'co-operative bank' shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) 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 (b) deposits, other than time deposits made on or after 1 July 1995, with a co-operative society other than one referred to in sub-clause (a) that is engaged in carrying on the business of banking. Paragraph 42.5 of Circular No. 19 of 2015 explains that the exemption from deduction on interest paid to members by a co-operative society shall not apply to payment of interest on time deposits by co-operative banks to their members, that the amendment is effective from the prospective date of 1 June 2015, and that a co-operative bank was not required to deduct tax on interest on members' time deposits paid or credited before that date. Paragraph 42.6 states that the existing exemption under clause (viia)(a) continues to apply, so that those societies and banks are not required to deduct tax on interest paid to depositors even after the amendment. Paragraph 42.7 states that the existing exemption under clause (v) from deduction of tax on interest paid by a co-operative society to another co-operative society shall continue to apply to the co-operative bank, and therefore a co-operative bank shall not be required to deduct tax from the payment of interest on a time deposit to a depositor being a co-operative society. The matter was decided on 2015-06-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. Clause (v) of s.194A(3) exempts two things and is read in two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words "other than a co-operative bank" were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015; the second limb was not amended and carries no exclusion of a co-operative bank. The Explanation to the clause gives "co-operative bank" the meaning assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, and (b) deposits other than time deposits made on or after 1 July 1995 with a co-operative society, other than one referred to in sub-clause (a), engaged in carrying on the business of banking. Paragraphs 42.5, 42.6 and 42.7 of CBDT Circular No. 19 of 2015 dated 27 November 2015 explain the amendment, the survival of the clause (viia)(a) exemption, and the continuance of the second-limb exemption for a co-operative bank paying interest to a depositor that is a co-operative society.
The Bombay High Court held that the legislature consciously refrained from repeating in the second limb of clause (v) the exclusion it had spelt out in the first, that the inherent legal character of a co-operative bank as a co-operative society is not extinguished by its banking licence, and that in a taxing statute the Court cannot read in words the legislature has not used. That construction is fortified by paragraph 42.7 of the circular. The Madras High Court, construing the same clause before the amendment, had earlier held that none of the State or central enactments — the Tamil Nadu Co-operative Societies Act 1983, the Multi-State Co-operative Societies Act 2002, the Reserve Bank of India Act 1934, the Banking Regulation Act 1949 and the NABARD Act 1981 — draws a distinction between a co-operative society engaged in carrying on banking business and a co-operative bank, and that the 2015 amendment, being made to remove an anomaly, could only be prospective. In the words reproduced by the source cited on this page: "Further, the existing exemption provided under section 194A(3)(v) of the Income-tax Act from deduction of tax from interest paid by a co-operative society to another co-operative society shall continue to apply to the co-operative bank and, therefore, a co-operative bank shall not be required to deduct tax from the payment of interest on time deposit to a depositor, being a co-operative society." The decision followed or applied Citizen Credit Co-operative Bank Ltd. (Borivali) and others v. The Income Tax Officer, TDS Ward, Mumbai, Income Tax Appeal (L) No. 2533 of 2026 and connected appeals, decided 6 August 2026 (Bombay High Court); M/s The Coimbatore District Central Co-operative Bank Ltd. v. The Income Tax Officer, TDS Ward-I(5), Coimbatore, decided 15 October 2015 (Madras High Court); Kaipuzha Service Co-operative Bank Ltd. and others v. Commissioner of Income Tax (TDS) and others (Kerala High Court), where the Revenue conceded the point.
It was decided by the CBDT Circulars & Instructions on 2015-06-01 and is reported as Words 'other than a co-operative bank' inserted in the first limb of s.194A(3)(v) by the Finance Act 2015 with effect from 1 June 2015; CBDT Circular No. 19 of 2015 dated 27 November 2015 (F.No.142/14/2015-TPL), Explanatory Notes to the provisions of the Finance Act 2015. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194A(3)(v), section 194A(3)(viia), section 194A(3)(i), section 194A(1), section 2(19), section 201(1), section 201(1A), section 80P(2)(d), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. Clause (v) of s.194A(3) exempts two things and is read in two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words "other than a co-operative bank" were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015; the second limb was not amended and carries no exclusion of a co-operative bank. The Explanation to the clause gives "co-operative bank" the meaning assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, and (b) deposits other than time deposits made on or after 1 July 1995 with a co-operative society, other than one referred to in sub-clause (a), engaged in carrying on the business of banking. Paragraphs 42.5, 42.6 and 42.7 of CBDT Circular No. 19 of 2015 dated 27 November 2015 explain the amendment, the survival of the clause (viia)(a) exemption, and the continuance of the second-limb exemption for a co-operative bank paying interest to a depositor that is a co-operative society. It arises in TDS Defaults and Co-operative Societies matters, on section 194A(3)(v), section 194A(3)(viia), section 194A(3)(i), section 194A(1), section 2(19), section 201(1), section 201(1A), section 80P(2)(d) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For interest to members, check whether the payer is a co-operative bank and whether the payment falls before or after 1 June 2015; before that date the Madras High Court has held the exemption survived. For interest to other co-operative societies, run the second limb and paragraph 42.7 of Circular No. 19 of 2015, and be ready to show from the bye-laws that the payee societies are not members, so that the first limb is not engaged. Check clause (viia)(a) independently. If the payer is a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, no deduction is required on interest on deposits at all. Do not let the Assessing Officer decide the TDS question by reference to the payee's entitlement under s.80P(2)(d); that reasoning has been held to be an intermixing of two provisions that operate at different stages. Verify the current monetary thresholds in s.194A(3)(i) separately before advising — they have been raised more than once and are deliberately not stated here.
Validity check could not be completed. The construction of the two limbs of clause (v) stated here rests on a Bombay High Court judgment delivered on 6 August 2026, about a month before this entry; whether the Revenue has taken it further was not checked, and it is the first Division Bench treatment of the second limb located in this pass. The Madras High Court's holding on the prospectivity of the 2015 amendment is separate and older. The current text of clause (v), its Explanation and clause (viia) was confirmed against the department's page carrying the stamp 'Year: 2026'; the monetary thresholds in s.194A(3)(i) have been amended since the year to which the judgment's reproduction relates and are deliberately not stated. Nothing in Mavilayi Service Co-operative Bank (SC, 2021) or Kerala State Co-operative Agricultural and Rural Development Bank (SC, 2023) bears on s.194A. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The texts of s.194A(1), s.194A(3)(v) with its Explanation and s.194A(3)(viia) reproduced here were read from their verbatim reproduction in the Bombay High Court's judgment of 6 August 2026 in Citizen Credit Co-operative Bank Ltd. v. ITO (TDS Ward), which set them out at its paragraph 19 as applicable to assessment year 2016-17, together with paragraphs 42 to 42.7 of CBDT Circular No. 19 of 2015 at its paragraph 27. Because that reproduction is keyed to assessment year 2016-17, the monetary thresholds in s.194A(3)(i) are NOT stated in this entry and must not be inferred from it; they have since been amended. The current text of clause (v), its Explanation and clause (viia) was afterwards confirmed against the department's own page at incometaxindia.gov.in/w/section-194a, which carries the stamp 'Year: 2026' and prints both clauses in the terms set out above. The monetary thresholds in s.194A(3)(i) were deliberately not read across from that page and are not stated here. This is a statutory entry, not a decision; 'tier' is set to 'cbdt' because the library's fixed tier vocabulary has no value for a statutory entry, and 'decided_on' is the commencement date of the Finance Act 2015 amendment to clause (v), 1 June 2015, not the date of any judgment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. Clause (v) of s.194A(3) exempts two things and is read in two limbs: income credited or paid by a co-operative society, other than a co-operative bank, to a member thereof; and income credited or paid by a co-operative society to any other co-operative society. The words "other than a co-operative bank" were inserted in the first limb by the Finance Act 2015 with effect from 1 June 2015; the second limb was not amended and carries no exclusion of a co-operative bank. The Explanation to the clause gives "co-operative bank" the meaning assigned to it in Part V of the Banking Regulation Act, 1949. Clause (viia) exempts income credited or paid in respect of (a) deposits with a primary agricultural credit society, a primary credit society, a co-operative land mortgage bank or a co-operative land development bank, and (b) deposits other than time deposits made on or after 1 July 1995 with a co-operative society, other than one referred to in sub-clause (a), engaged in carrying on the business of banking. Paragraphs 42.5, 42.6 and 42.7 of CBDT Circular No. 19 of 2015 dated 27 November 2015 explain the amendment, the survival of the clause (viia)(a) exemption, and the continuance of the second-limb exemption for a co-operative bank paying interest to a depositor that is a co-operative society.
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