1072. Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks
Circular No. 42 was issued by the Central Board of Direct Taxes on 20 June 1970. Its subject is 1072. Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Takes bank deposit interest out of deduction at source and says what to do about deductions already made. The Finance Act, 1970 inserted clause (vii) in section 194A(3), so that section 194A does not apply to interest credited or paid on deposits with a banking company to which the Banking Regulation Act, 1949 applies, including a bank or banking institution referred to in section 51 of that Act, or with a co-operative society carrying on banking, including a co-operative land mortgage bank or a co-operative land development bank; such institutions are therefore no longer to deduct from interest paid or credited to a resident depositor. Where tax has already been deducted earlier in the financial year and either a certificate has been issued to the depositor or the tax has been paid into the Government account, the bank cannot refund it directly; the tax must go into the Government account and the depositor must obtain his refund from his Income-tax Officer in the prescribed way. Where tax was deducted but no certificate was issued and nothing was paid in, the entry in the bank's books may simply be written back.
The exemption came in during the year and banks that had already deducted needed to know whether they could reverse it themselves.
1072. Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks
1. I am directed to invite a reference to the Board’s Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has made an important change in section 194A by inserting a new clause (vii) in sub-section (3) of that section. As per this clause, the provisions of section 194A are not applicable to income by way of interest credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act), or with 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). All such banking institutions are, therefore, no longer required to deduct tax from interest paid or credited to the accounts of a resident depositor.
2. Where, however, tax has already been deducted at source from interest paid by such banks to resident depositors so far during this financial year, and certificate for such deduction issued to the depositors or the tax so deducted paid into Government account, such tax, under the existing provisions of law, cannot be refunded directly by the banks to depositors concerned and it has to be credited to Government account and the depositors have to obtain necessary refund/as may be due in this behalf, from their Income-tax Officers according to the prescribed procedure. If, on the other hand, tax has been deducted but neither certificate of deduction issued to the depositor nor the amount paid into Government account, the entry in bank’s account may be written back to nullify deduction of tax.
Circular : No. 42 [F. No. 275/62/70-ITJ], dated 20-6-1970.
In an old refund claim by a depositor whose bank deducted before the exemption came in, or in a bank's reconciliation of deductions for 1970-71.
Source: the Income Tax Department’s own published text — its page for this instrument.
