Circular No. 626 — 1066. Clarification regarding deduction from interest on time deposits with banks

What this is

Circular No. 626 was issued by the Central Board of Direct Taxes on 12 February 1992. Its subject is 1066. Clarification regarding deduction from interest on time deposits with banks.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Splits the year for bank time deposit interest. Deduction under section 194A on interest on time deposits with banks came into force on 1 October 1991, and the question was what to do with interest paid or credited between 1 April 1991 and 30 September 1991. The Board clarifies that only interest paid or credited after 1 October 1991 is liable to deduction at the specified rate, but the interest of the earlier half of the year is reckoned in seeing whether the aggregate interest paid or credited in the financial year exceeds Rs. 2,500 — that aggregate deciding whether deduction must be made from the payments or credits after 1 October 1991.

Why it was issued

A question arose, following Circular No. 617 dated 22 November 1991 on the new provisions, whether interest of the pre-October half of financial year 1991-92 had to be brought in for deduction after 1 October 1991.

Who it reaches

Banks paying interest on time deposits in financial year 1991-92
Depositors with time deposit interest around the Rs. 2,500 mark
Assessing Officers in TDS charges for that year

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.194A	s.2, s.393, s.400, s.402

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1066. Clarification regarding deduction from interest on time deposits with banks
1. Please refer to Board’s Circular No. 617, dated 22-11-1991 regarding deduction of tax at source from interest other than ‘interest on securities’ under section 194A of the Income-tax Act with particular reference to the new provisions in relation to deduction of tax from interest on time deposits with banks.
2. A question has arisen as to whether the interest paid/credited by banks on time deposits from 1-4-1991 to 30-9-1991 has to be included for the purpose of deduction of tax at source after 1-10-1991. It is clarified that since the provisions relating to tax deduction at source from interest on time deposits with banks came into force w.e.f. 1-10-1991, only the interest paid or credited after this date will be liable for deduction of tax at source at the specified rate. The interest paid/credited during the period 1-4-1991 to 30-9-1991 will be reckoned only for the purposes of seeing whether the aggregate interest paid/credited during the financial year exceeds the limit of Rs. 2,500 which will determine the liability to deduct tax at source from payments made/credited after 1-10-1991.
Circular : No. 626, dated 12-2-1992.

What to watch

The earlier half-year's interest counts for the threshold but never for the tax — an easy point to get wrong in either direction.
A depositor whose whole year's interest exceeds Rs. 2,500 suffers deduction on the post-October interest even if that part alone is below the limit.
The clarification is tied to the commencement of the provision on 1 October 1991 and so is spent as a transitional rule.
The Rs. 2,500 threshold is that then in force under section 194A.

Where you meet it

In an old TDS record of a bank branch for financial year 1991-92, or in a depositor's claim that deduction should not have been made.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A depositor is credited Rs. 1,800 of time deposit interest between April and September 1991 and Rs. 1,200 between October 1991 and March 1992. The aggregate of Rs. 3,000 exceeds Rs. 2,500, so the bank must deduct — but only on the Rs. 1,200 credited after 1 October 1991.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 27/2023 [F. No. 370142/11/2023-TPL] / SO 2189(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 16 May 2023
Notification No. 110/2021 [F. No. 275/27/2021-IT(B)] / SO 3815(E) — Ministry of Finance 17 September 2021
Notification No. 26/2019 [F. No. 275/15/2018-IT(B)]/SO 1399(E) — -, -. ~ "Bo ito ~o 33004 99 REGD. NO. D. L.-33004/99 ([he <5o':t.ette of 3ndio . 1251] No. 1251] 3ffiTmruT EXTRAORDINARY 20 March 2019
Notification No. 6/2018 — TDS deduction under section 194A of the income tax act 1961 in case of senior citizens 6 December 2018
Notification No. 65/2016 [F. No. 275/28/2015-IT (B)] / SO 2616(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 5 August 2016
Notification: 4 Date of Issue: 24/1/2013 — [To BE Published in Gazette of INDIA, Extraordinary, Part II 24 January 2013

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A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.