Banks that can't cut TDS on interest income
The Income Tax (I-T) Department has given a clarification about banks (banking companies) that are eligible to cut tax deduct at source (TDS) on interest other than interest on securities.
The clarification comes in the context of provisions under the Income-tax Act, 2025, which replaces similar rules that exist under the Income-tax Act, 1961. The provisions of the New Income-tax Act, 2025, will come into effect on April 1, 2026.
TDS rule under the Income-tax Act, 1961
The Income Tax Department says Section 194A of the Income Tax Act, 1961, deals with the deduction of tax at source (TDS) on interest other than interest on securities.
The Income Tax Department in a social media post on X (formerly Twitter) stated: “Under the provisions of Section 194A of the Income-tax Act, 1961, tax is required to be deducted at source on interest other than interest on securities. However, in terms of provisions of Section 194A(3), banking companies are not required to deduct tax where such interest does not exceed the prescribed threshold (Rs 50,000/Rs 1,00,000, as applicable).”
What is a banking company under the Income-tax Act, 1961?
The I-T Department further says under the Income-tax Act, 1961, the scope of ‘banking company’ included not only banking companies to which the Banking Regulation Act, 1949 applies, but also ‘any bank or banking institution referred to in Section 51 of that Act.’
CA Abhishek Soni, CEO & CO-founder, Tax2win, says that the government has clarified that there is no real change in TDS rules on bank interest under the new Income-tax Act, 2025. Even though the definition of “banking company” looks shorter now, it still covers the same banks and institutions as before. So, if your interest income is within Rs 50,000 or Rs 1,00,000 (as applicable), the bank will not deduct TDS. The rules remain the same for depositors.
What is a banking company under the Income-tax Act, 2025?
Under the Income-tax Act, 2025, the corresponding provision relating to TDS on interest is contained in Section 393(1) [Table: Sl. No. 5(ii)], and the definition of a ‘banking company’ has been provided in Section 402 of the Act.
In Section 402 of the Income-tax Act, 2025, a banking company refers to a banking company to which the provisions of the Banking Regulation Act, 1949, apply. The earlier phrase ‘including any bank or banking institution referred to in Section 51 of that Act has not been included, as per the Income Tax Department update.
By virtue of the extant Section 51 of the Banking Regulation Act, 1949, such banks and banking institutions fall within the meaning of a ‘banking company’ under Section 402 of the Income-tax Act, 2025, even without explicit mention.
Thus, such banks or banking institutions will not be required to deduct income tax on the amount below the threshold provided in Section 393(1) [Table: Sl. No. 5(ii)] of Income-tax Act, 2025.
What is the TDS limit for general and senior citizens?
The TDS threshold on bank/post office deposit interest is Rs 1,00,000 per year for senior citizens (60+ years) and Rs 50,000 per year for general citizens (below 60).
TDS details
At present, TDS is not deducted by banks if interest earned by a depositor does not exceed the prescribed threshold limit, such as Rs 50,000 or Rs 1 lakh, depending on the category of the depositor.
What changes under the Income-tax Act, 2025
Under the Income-tax Act, 2025, the provision related to deduction of TDS on interest income is now covered under Section 393(1). The definition of a banking company has been provided separately under Section 402 of the new law.
Form 15H submission to declare extraordinary income
CA Surana says that if a senior citizen submits Form 15H at the beginning of the financial year but later, due to extraordinary income, their total income exceeds the basic exemption limit, they should take the following steps:
Ø Inform the bank or deductor – The individual must immediately notify the bank or financial institution where Form 15H was submitted. This ensures that TDS (Tax Deducted at Source) is deducted appropriately on interest or other eligible incomes.
Ø Pay advance tax, if required – If the total tax liability exceeds Rs 10,000 (after considering deductions and rebates), a senior citizen should pay advance tax to avoid interest penalties under Sections 234B and 234C of the Income Tax Act.
Ø File Income Tax Return (ITR) Correctly – While filing the Income Tax Return (ITR), the senior citizen should accurately report all sources of income, including the extraordinary income, and pay any pending tax dues before the filing deadline.
If the bank has not deducted TDS due to the earlier Form 15H submission, the taxpayer should self-assess their tax liability and clear any dues before filing the return.In the Income-tax Act, 1961, the scope of “banking company” included not only banking companies to which the Banking Regulation Act, 1949 applies, but also “any bank or banking institution referred to in section 51 of that Act.” Under the Income-tax Act, 2025, the corresponding provision relating to TDS on interest is contained in Section 393(1) [Table: Sl. No. 5(ii)], and the definition of “banking company” has been provided in Section 402 of the Act.
The clarification comes in the context of provisions under the Income-tax Act, 2025, which replaces similar rules that exist under the Income-tax Act, 1961. The provisions of the New Income-tax Act, 2025, will come into effect on April 1, 2026.
TDS rule under the Income-tax Act, 1961
The Income Tax Department says Section 194A of the Income Tax Act, 1961, deals with the deduction of tax at source (TDS) on interest other than interest on securities.
The Income Tax Department in a social media post on X (formerly Twitter) stated: “Under the provisions of Section 194A of the Income-tax Act, 1961, tax is required to be deducted at source on interest other than interest on securities. However, in terms of provisions of Section 194A(3), banking companies are not required to deduct tax where such interest does not exceed the prescribed threshold (Rs 50,000/Rs 1,00,000, as applicable).”
What is a banking company under the Income-tax Act, 1961?
The I-T Department further says under the Income-tax Act, 1961, the scope of ‘banking company’ included not only banking companies to which the Banking Regulation Act, 1949 applies, but also ‘any bank or banking institution referred to in Section 51 of that Act.’
CA Abhishek Soni, CEO & CO-founder, Tax2win, says that the government has clarified that there is no real change in TDS rules on bank interest under the new Income-tax Act, 2025. Even though the definition of “banking company” looks shorter now, it still covers the same banks and institutions as before. So, if your interest income is within Rs 50,000 or Rs 1,00,000 (as applicable), the bank will not deduct TDS. The rules remain the same for depositors.
What is a banking company under the Income-tax Act, 2025?
Under the Income-tax Act, 2025, the corresponding provision relating to TDS on interest is contained in Section 393(1) [Table: Sl. No. 5(ii)], and the definition of a ‘banking company’ has been provided in Section 402 of the Act.
In Section 402 of the Income-tax Act, 2025, a banking company refers to a banking company to which the provisions of the Banking Regulation Act, 1949, apply. The earlier phrase ‘including any bank or banking institution referred to in Section 51 of that Act has not been included, as per the Income Tax Department update.
By virtue of the extant Section 51 of the Banking Regulation Act, 1949, such banks and banking institutions fall within the meaning of a ‘banking company’ under Section 402 of the Income-tax Act, 2025, even without explicit mention.
Thus, such banks or banking institutions will not be required to deduct income tax on the amount below the threshold provided in Section 393(1) [Table: Sl. No. 5(ii)] of Income-tax Act, 2025.
What is the TDS limit for general and senior citizens?
The TDS threshold on bank/post office deposit interest is Rs 1,00,000 per year for senior citizens (60+ years) and Rs 50,000 per year for general citizens (below 60).
TDS details
At present, TDS is not deducted by banks if interest earned by a depositor does not exceed the prescribed threshold limit, such as Rs 50,000 or Rs 1 lakh, depending on the category of the depositor.
What changes under the Income-tax Act, 2025
Under the Income-tax Act, 2025, the provision related to deduction of TDS on interest income is now covered under Section 393(1). The definition of a banking company has been provided separately under Section 402 of the new law.
Form 15H submission to declare extraordinary income
CA Surana says that if a senior citizen submits Form 15H at the beginning of the financial year but later, due to extraordinary income, their total income exceeds the basic exemption limit, they should take the following steps:
Ø Inform the bank or deductor – The individual must immediately notify the bank or financial institution where Form 15H was submitted. This ensures that TDS (Tax Deducted at Source) is deducted appropriately on interest or other eligible incomes.
Ø Pay advance tax, if required – If the total tax liability exceeds Rs 10,000 (after considering deductions and rebates), a senior citizen should pay advance tax to avoid interest penalties under Sections 234B and 234C of the Income Tax Act.
Ø File Income Tax Return (ITR) Correctly – While filing the Income Tax Return (ITR), the senior citizen should accurately report all sources of income, including the extraordinary income, and pay any pending tax dues before the filing deadline.
If the bank has not deducted TDS due to the earlier Form 15H submission, the taxpayer should self-assess their tax liability and clear any dues before filing the return.In the Income-tax Act, 1961, the scope of “banking company” included not only banking companies to which the Banking Regulation Act, 1949 applies, but also “any bank or banking institution referred to in section 51 of that Act.” Under the Income-tax Act, 2025, the corresponding provision relating to TDS on interest is contained in Section 393(1) [Table: Sl. No. 5(ii)], and the definition of “banking company” has been provided in Section 402 of the Act.
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