What the rule says
Under the current framework of the Income-tax Act, 1961, TDS applies to interest income (other than interest on securities) under Section 194A. However, banks are not required to deduct TDS if the interest paid to a depositor remains below specified thresholds—₹50,000 or ₹1,00,000, depending on the category of taxpayer.
What changed in the new law
In the updated Income-tax Act, 2025, the corresponding provision governing TDS on interest is contained in Section 393(1). The definition of a “banking company,” meanwhile, is outlined in Section 402.
A key point of confusion arose because the earlier law explicitly included certain banks and institutions referenced under Section 51 of the Banking Regulation Act, 1949 within the definition of “banking company.” This explicit mention does not appear in the new Act.
What the clarification says
The tax department has now clarified that despite the absence of this explicit phrase, there is no change in substance. By virtue of Section 51 of the Banking Regulation Act, 1949, such banks and institutions continue to fall within the definition of “banking company” under the new law.
What this means for depositors
In practical terms, this ensures continuity:
- Banks and eligible banking institutions will not deduct TDS on interest income below the prescribed thresholds
- The scope of institutions covered remains effectively unchanged
- Depositors will not face additional TDS merely due to definitional changes in the new law
Why this matters
The clarification removes ambiguity for both banks and depositors at a time when the transition to the new tax framework is underway. Without it, some institutions may have erred on the side of caution and begun deducting TDS even on small interest amounts, impacting cash flows for depositors.
First Published: Mar 30, 2026 3:58 PM IST