I am a trustee of an educational Trust. The Trust is registered u/s 12AA. Should the banks deduct TDS on our FD interest? Chandan Naha , Kolkata
Yes, the Bank is correct to deduct the tax at source even though you are registered u/s 12AA . The bank is only doing their duty and they can not take the role of Assessing Officer .
As per CBDT Circular : No. 4/2002, dated 16-7-2002, all entities having income fully exempt u/s 10 is not out of TDS clutch. The said circular is given below which states in what conditions ,TDS may not be made .
Applicability to entities whose income is fully exempt under section 10 -
Subsequent to the amendment to section 197A made by the Finance Act, 2002 whereby a new sub-section (1B) has been inserted with effect from 1st June, 2002, representations have been received seeking clarification whether the prescribed self-declaration under the said section can be submitted by entities exempt from tax under section 10 even if the payments referred to in sub-section (1A) to be made to them exceed the threshold limit not subject to tax.
This matter has been examined by the Board. It has been decided that in case of those funds or authorities or Boards or bodies, by whatever name called, whose income is unconditionally exempt under section 10 and who are statutorily not required to file return of income as per section 139, there would be no requirement for tax deduction at source since their income is anyway exempt under the Income-tax Act. The institutions whose income is unconditionally exempt under section 10 and who are statutorily not required to file return of income as per the provisions of section 139 are :
(i) “local authority”, as referred to in the Explanation to clause (20);
(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA);
(iii) Fund, by whatever name called, set up by the Life Insurance Corporation of India on or after 1st August, 1996, or by any other insurer referred to in clause (23AAB);
(iv) Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB);
(v) Body or authority referred to in clause (23BBA);
(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC);
(vii) Secretariat of the Asian Organisation of the Supreme Audit Institutions referred to in clause (23BBD) till assessment year 2003-04;
(viii) Insurance Regulatory and Development Authority referred to in clause (23BBE);
(ix) Prime Minister’s National Relief Fund referred to in sub-clause (i), Prime Minister’s Fund (Promotion of Folk Art) referred to in sub-clause (ii), Prime Minister’s Aid to Students Fund referred to in sub-clause (iii), National Foundation for Communal Harmony referred to in sub-clause (iiia), any university or other educational institution referred to in sub-clause (iiiab) and any hospital or other institution for the reception and treatment of persons as referred to in sub-clause (iiiac) of clause (23C);
(x) Credit Guarantee Fund Trust for Small Industries referred to in clause (23EB) assessment year 2006-07;
(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i), recognised provident fund referred to in sub-clause (ii), approved superannuation funds referred to in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);
(xii) Employees’ State Insurance Fund referred to in clause (25A);
(xiii) Corporations referred to in clause (26BB);
(xiv) Boards referred to in clause (29A) -
As you can see that two prime conditions to be satisfied for being out of TDS by fully tax free entities are
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Income is unconditionally exempt and
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There is no requirement of filing return u/s 139.
Many of the trusts or entities whose income is otherwise fully exempt do not fulfil both the conditions because if one reads sub-sections 4A ,4B ,4C and 4D of Section 139 makes it mandatory for filing return for even those entities whose income is otherwise exempt u/s 10,11 and 12 of the I T Act.
So , what is the remedy for exempt entities like you?
There are two remedies left for the Trusts or institutions whose income is exempt and who wants that the income earned by them from interest or dividend should not be subject to tax . These are :
1. Apply before Assessing officer for Nil deduction certificate u/s 197 of the I T Act. The application should be made in Form 13 which once A.O issues NIL deduction certificate asp per Rule 28AA of I T Rule produced before the deductor will save you from the TDS .
Or
2. Submit a declaration in Form 15G of the I T Act to the deductor .
Remember Form 15G can not be filed by an entity whose aggregate income from interest or income from units do not exceed maximum amount chargeable to tax .
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