CBDT vide Notification No. 110/2021 in S.O. 3815(E) dated 17th September, 2021 relaxes provisions of TDS u/s 194A of the Income-tax Act, 1961 (“Act”) in view of section 10(26) of the Act.
Section 10(26)(a), Income-tax Act, 1961 provides that a person is entitled to exemption from income tax if-
(1) he is a member of a Scheduled Tribe as defined in Article 366(25) of the Constitution,
(2) residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution, or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or in the areas covered by notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub-paragraph (3) of the said paragraph 20 [as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971 (81 of 1971)] or in the Ladakh region of the State of Jammu and Kashmir,
(3) the income in respect of which exemption is claimed is income which accrues or arises to him from any source in the area or State mentioned in the section or by way of dividend or interest on securities.
An analysis of this provision shows that in order to entitle a person to the exemption, three conditions must co-exist:
(i) He should be a member of a Scheduled Tribe as defined in Clause (25) of Article 366 of the Constitution;
(ii) He should be residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or the State mentioned in this provision;
(iii) The income in respect of which exemption is claimed must be an income which accrues or arises to him-
(a) from any source in the area, State or Union territories mentioned in the provision or
(b) by way of dividend or interest, on securities".
Since the interest income of a member of Scheduled Tribe is exempt u/s 10(26) of the Act, CBDT has now notified that if payment of interest is made by a scheduled bank located in the specified area to a member of the Scheduled Tribe as referred to in section 10(26) shall not be subject to TDS under section 194A. This exemption from TDS under section 194A is available if the aggregate amount of interest payment does not exceed Rs. 20 Lakh in a previous year.
Section 194A deals with the deduction of income tax from interest income paid by a bank or any other person. The rate of TDS u/s 194A is 10%.
With this exemption, banks are not required to deduct tax on the interest amount paid to the members of Scheduled Tribe of mostly North Eastern States.
CBDT in a Press Release dated 17.09.2021 clarified that the Central Government in exercise of the powers conferred by sub-section(1F) of section 197A of the Act notified that no deduction of tax shall be made on the following payment under section 194A of the Act, namely payment in the nature of interest, other than interest on securities, made by a Scheduled Bank (hereinafter the ‘payer’) located in a specified area to a member of Scheduled Tribe (hereinafter the ‘receiver’) residing in any specified area as referred to in section 10(26) of the Act, subject to the following conditions:
i. the payer satisfies itself that the receiver is a member of Scheduled Tribe residing in any specified area, and the payment as referred above is accruing or arising to the receiver as referred to in section 10(26) of the Act, during the previous year relevant for the assessment year in which the payment is made, by obtaining necessary documentary evidences in support of the same;
ii. the payer reports the above payment in the statements of deduction of tax as referred to in sub-section (3) of section 200 of the Act;
iii. the payment made or aggregate of payments made during the previous year does not exceed twenty lakh rupees.
For the purposes of the said notification, ‘Scheduled Bank’ means a bank included in the Second Schedule of the Reserve Bank of India Act, 1934.
Notification no. 110/2021 dated 17th September 2021 has been issued.
Read the full text on Notification No. 110/2021 dated 17.09.2021 on TDS Exemption u/s 194A covered by section 10(26)
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 17th September, 2021
INCOME TAX
S.O. 3815(E).—In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax shall be made on the following payment under section 194A of the said Act, namely payment in the nature of interest, other than interest on securities, made by a scheduled bank (hereinafter the “payer”) located in a specified area, to a member of Scheduled Tribe (hereinafter the “receiver”) residing in any specified area, as referred to in clause (26) of section 10 of the said Act, subject to the following conditions:
(i) the payer satisfies itself that the receiver is a member of Scheduled Tribe residing in any specified area, and the payment as referred above is accruing or arising to the receiver as referred to in clause (26) of section 10 of the said Act, during the previous year relevant for the assessment year in which the payment is made, by obtaining necessary documentary evidences in support of the same;
(ii) the payer reports the above payment in the statements of deduction of tax as referred to in subsection (3) of section 200 of the said Act;
(iii) the payment made or aggregate of payments made during the previous year does not exceed twenty lakh rupees.
Explanation. - For the purposes of this notification, the expression “scheduled bank” shall have the same meaning as assigned to it in clause (e) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934).
2. This notification shall come into force from the date of its publication in the Official Gazette.
[Notification No. 110/2021/F. No. 275/27/2021-IT(B)]
ARVIND KUMAR MISHRA, Under Secy.
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