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Amendment : Cooperative Societies have to deduct TDS


Amendment : Cooperative Societies have to deduct TDS. Check Complete details regarding Cooperative Societies have to deduct TDS.  W.e.f 1st June, 2015, the exemption from TDS on payment of interest to members by co-operative societies and banks would be withdrawn. It is a bad news for co-operative banks as Union Budget 2015 presented by Finance Minister Mr. Arun Jaitley has made the amendment to Section 194A of The Income Tax Act, 1961.. Now you can scroll down below and check more details for Amendment : Cooperative Societies have to deduct TDS

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Amendment : Cooperative Societies have to deduct TDS

Cooperative Society

This will not be good news for TDS avoiders! Section 194A of The Income Tax is amended w.e.f. 1st June, 2015 wherein even if you are a member of a coop. bank, TDS has to be deducted!!

Secondly, interest earned on Recurring Deposit (RD) is also subject to TDS.

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Let us have a look on the entire scenario:

How people were avoiding TDS earlier?

Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs.10,000 for interest payment by banks, co-operative society engaged in banking business (co-operative bank) and post office and Rs.5,000 for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in respect of following interest payments by co-operative society:

(i) Interest payment by a co-operative society to a member thereof or any other co-operative society. [Section 194A(3)(v) of the Act]

(ii) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or co-operative land development bank. [Section 194A(3)(viia)(a) of the Act]

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(iii) Interest payment on deposits other than time deposits by a co-operative society engaged in the business of banking other than those mentioned in section 194A(3)(viia)(a) of the Act. [Section 194A(3)(viia)(b) of the Act]

Therefore, as per the provisions of section 194A(1) read with the provisions of sections 194A(3)(i)(b) and 194A(3)(viia)(b), co-operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs. 10,000/-.

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However, as the provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to various dispute as to whether the co-operative banks, for which the specific provisions of tax deduction exist in the form of section 194A (1), section 194A(3)(i)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members.

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As there is no difference in the functioning of other commercial banks and the co-operative banks, the Finance Act, 2006 and Finance Act, 2007 were amended. There was no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members.

How will TDS amount be calculated?

TDS would not be calculated depending on maturing funds, but would depend on how much interest had been accrued in each financial year. For example, a recurring deposit that matures after five years would not be calculated for TDS on the interest at maturity, say Rs 100,000. The tax would be calculated on interest credited above Rs 10,000 in each of those five years.

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What are the exemptions?

  • The existing exemption to primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank from deduction of tax in respect of interest paid on deposit shall continue to apply.
  • Lower or Nil Deduction :

The depositors can avoid TDS on interest by submitting form 15G (by Individuals) or form 15H (by senior citizens) to their bankers if their total income is less than the taxable income.
That is, the Assessee whose income-after considering the interest from fixed deposits-do not cross the minimum income-tax ceiling and savings of senior citizens above 65 years of age would be exempt from TDS if they file the Respective forms & submit to their banks.

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What happens if one keeps money in different branches of the same bank to avoid TDS?

The basic exemption of Rs.10,000 to be considered is for a bank as a whole, not branch wise! So, now on, if the bank has core banking solution, the threshold limit will be calculated for the bank as a whole.

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About CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at [email protected]




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