Direct Tax Circular No.9-2002 dated 11th September, 2002

Tax deduction at source u/s 194A of the Income-Tax Act, 1961-
applicability of the provisions in respect of income paid or credited to a member of co-operative bank-reg.

Under section 194A of the Income-tax Act, 1961, tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (v) of sub-section 3 of section 194A exempts such income credited or paid by a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1.7.1995) with a co-operative society engaged in carrying on the business of banking.

2. Representations have been received in the Board seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1.7.1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits otherthan time deposits with such co-operative bank without TDS u/s 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a non-member depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1.7.1995 without TDS under section 194A.

3. A question has also been raised as to whether nominal members, associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank, must be entitled to participate and vote in the General Body Meetings and/ or Special General Body Meetings of the co-operative bank and must be entitled to receive share from the profits of the co-operative bank.

Sd/-
(Anand Jha)
Deputy Secretary to the Government of India

F.No.275/106/2000-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi