Banking Companies to Deduct TDS Only Above Threshold, Clarifies Income Tax Department
Definition Under New Income Tax Act, 2025 Aligned With Banking Regulation Act
New Delhi, March 30: The Income Tax Department on Monday clarified that banking companies governed by the Banking Regulation Act, 1949, will deduct Tax Deducted at Source on interest income only when it exceeds the prescribed threshold limits.The clarification comes under Section 402 of the Income Tax Act, 2025, where the term "banking company" has been defined as a company to which the provisions of the Banking Regulation Act, 1949 apply.
TDS Threshold Remains Unchanged for Depositors
Under existing income tax provisions, TDS is applicable on interest income from bank or post office deposits if it crosses Rs 50,000 in a financial year for general citizens and Rs 1 lakh for senior citizens.The department reiterated that tax deduction at source will only apply once these thresholds are breached.
Scope of Banking Companies Explained
The Income Tax Department, in a post on X, highlighted that under the Income-tax Act, 1961, the definition of "banking company" included not only entities covered directly under the Banking Regulation Act, 1949, but also banks and banking institutions referred to in Section 51 of the same Act.It further clarified that these banks and institutions continue to fall within the scope of "banking company" under Section 402 of the Income Tax Act, 2025, even without explicit mention.
No TDS Below Prescribed Limit
According to the department, banks and such institutions will not be required to deduct income tax on interest amounts below the threshold specified under Section 393(1).This clarification reinforces that TDS provisions remain linked to threshold limits and that eligible banking entities must comply accordingly.
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