The budget has proposed to amend the definition of ‘time deposits’ so as to include recurring deposits within its scope for the purpose of deduction of tax under section 194A of the Act. However, the existing threshold limit of Rs. 10,000 for non-deduction of tax shall also be applicable in case of interest payment on recurring deposits to safeguard interests of small depositors.
The existing provision of TDS on payment of interest by banking company or co-operative bank applies only to the interest payment on time deposits made on or after July 1, 1995.
The definition of “time deposits” provided in the section 194A of the Act excludes recurring deposit from its scope. Therefore, payment of interest on recurring deposits by banking company or co-operative bank is currently not subject to TDS. The recurring deposit is also made for a fixed tenure and, therefore, the same is akin to time deposit.
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