Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks - Income Tax - 42/1970

Circular No. 42 Dated 20/6/1970 Banks exempted from deducting tax at source from interest paid on deposits under clause (vii) of sub-section (3) from 1-4-1970 - Whether tax already deducted and paid into Government account could be refunded directly by banks 1. I am directed to invite a reference to the Boards Circular No. 22/68-IT(B) [F.No. 12/23/68-IT(B)], dated 28-3/13-5-1968, and to say that the Finance Act of 1970, has made an important change in section 194A by inserting a new clause (vii) in sub-section (3) of that section. As per this clause, the provisions of section 194A are not applicable to income by way of interest credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act), or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). All such banking institutions are, therefore, no longer required to deduct tax from interest paid or credited to the accounts of a resident depositor. 2. Where, however, tax has already been deducted at source from interest paid by such banks to resident depositors so far during this financial year, and certificate for such deduction issued to the depositors or the tax so deducted paid into Government account, such tax, under the existing provisions of law, cannot be refunded directly by the banks to depositors concerned and it has to be credited to Government account and the depositors have to obtain necessary refund/as may be due in this behalf, from their Income-tax Officers according to the prescribed procedure. If, on the other hand, tax has been deducted but neither certificate of deduction issued to the depositor nor the amount paid into Government account, the entry in banks account may be written back to nullify deduction of tax. Circular : No. 42 [F. No. 275/62/70-ITJ], dated 20-6-1970.