NO TAX DEDUCTION IN CERTAIN CASES [SECTION 197A] | AY 2019-20 onwards

No deduction of tax on dividends and NSS payments [Sub-section (1)]

• This section enables an individual, who is resident in India and whose estimated total income of the previous year is less than the basic exemption limit, to receive dividends and any sum out of National Savings Scheme Account, without deduction of tax at source under sections 194 and 194EE, on furnishing a declaration in duplicate in the prescribed form and verified in the prescribed manner.
• The declaration in the above form is to be furnished in writing in duplicate by the declarant to the person responsible for paying any income of the nature referred to in sections 194 or 194EE. The declaration will have to be to the effect that the tax on the estimated total income of the declarant of the previous year in which such income is to be included in computing his total income will be Nil.

Non-deduction of tax on following payments, paid to any person other than companies and firms [Sub-section (1A)]

• Premature withdrawal from Employees Provident Fund (Section 192A)
• Interest on Securities (Section 193)
• Interest other than interest on securities (Section 194A)
• Insurance Commission (Section 194D)
• Payment under life insurance policy (including bonus) (Section 194DA)
• TDS on rent (194I)

No tax shall be deducted if such person other than firm and company, gives declaration that, tax on his estimated total income after considering such payment will be NIL.

Filing declaration not permissible if income/aggregate of incomes exceed basic exemption limit [Sub-section (1B)]

Declaration cannot be furnished as per the above provisions, where -

• the amount of any income from dividends; or
• payments in respect of deposits under National Savings Schemes, etc.; or
• payment of premature withdrawal from Employee Provident Fund; or
• income from interest on securities or interest other than “interest on securities” or units; or
• insurance commission; or
• payment in respect of life insurance policy; or
• rent; or
• the aggregate of the amounts of such incomes in (i) to (vii) above
  credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the basic exemption limit.

Enabling provision for filing of declaration by resident senior citizens for non-deduction of tax at source [Sub-section (1C)]

For a resident senior citizen, who is of the age of 60 years or more at any time during the previous year, no deduction of tax shall be made under section 192A or section 193 or section 194 or section 194A or section 194D or section 194DA or section 194EE or section 194-I, if such individual furnishes a declaration in writing in duplicate to the payer, that tax on his estimated total income of the previous year in which such income is to be included in computing his total income is Nil. The restriction contained in sub-section (1B) will not apply to resident senior citizens.

Non-deduction of tax  in certain cases

Interest payments by an Offshore Banking Unit to a non-resident/not ordinarily resident in India [Sub-section (1D)]

No deduction of tax shall be made by an Offshore Banking Unit from the interest paid on -

• deposit made by a non-resident/not-ordinarily resident on or after 1.4.2005; or
• borrowing from a non-resident/not-ordinarily resident on or after 1.4.2005.

Applicability of section 197A(1D) and section 10(15)(viii) to interest paid by IFSC Banking Units (IBUs) [Circular No 26/2016 dated 4.7.2016]

The CBDT Circular clarifies that in accordance with the provisions of section 197A(1D), tax is not required to be deducted on interest paid by IFSC Banking Units, on deposit made on or after 1.4.2005 by a non-resident or a person who is not ordinarily resident in India, or on borrowings made on or after 1.4.2005 from such persons.

Payment to any person for, or on behalf of, the NPS Trust [Sub-section (1E)]

No deduction of tax at source shall be made from any payment to any person for, or on behalf of, the New Pension System Trust referred in section 10(44).

Specified payments to notified institutions/class of institutions etc. [Sub-section (1F)]

No deduction of tax shall be made from specified payments to such institution, association or body or class of institutions or associations or bodies as may be notified by the Central Government in the Official Gazette in this behalf. Therefore, in respect of such specified payments made to notified bodies, no tax is to be deducted at source.

Accordingly, the Central Government has notified that no deduction of tax shall be made from the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934, excluding a foreign bank or to any payment systems company authorised by the Reserve Bank of India under section 4(2) of the Payment and Settlement Systems Act, 2007–

• bank guarantee commission,
• cash management service charges,
• depository charges on maintenance of DEMAT accounts,
• charges for warehousing services for commodities,
• underwriting service charges,
• clearing charges (MICR charges) including interchange fee or any other similar charges, by whatever name called, charged at the time of settlement or for clearing activities under the Payment and Settlement Systems Act, 2007 and
• credit card or debit card commission for transaction between the merchant establishment and acquirer bank,

Time limit for delivery of one copy of declaration [Sub-section (2)]

On receipt of the declaration referred to in sub-sections (1), (1A) or (1C), the person responsible for making the payment will be required to deliver or cause to be delivered to the Chief Commissioner or Commissioner, one copy of the declaration on or before the 7th of the month following the month in which the declaration is furnished to him.