TDS on Bank Interest: Govt Clarifies Scope of ‘Banking Company’ under New Income-tax Act, 2025

Moneylife Digital Team 30 March 2026

Economy & Nation

The income-tax (I-T) department has issued a clarification on tax deduction at source (TDS) on interest under Section 194A, addressing concerns arising from definitional changes in the forthcoming Income-tax Act, 2025. The clarification reassures banking institutions that existing exemptions for small depositors will continue without disruption.

Clarification on TDS on interest u/s Section 194A in the case of banking institutions.

Under the provisions of Section 194A of the Income-tax Act, 1961, tax is required to be deducted at source on interest other than interest on securities. However, in terms of provisions of…
— Income Tax India (@IncomeTaxIndia) March 30, 2026

In a post on Income Tax India’s official handle on X (formally known as twitter) , the department explained that while Section 194A of the Income-tax Act, 1961 mandates TDS on interest other than interest on securities, an exception exists for banking companies where the interest amount does not exceed prescribed limits currently set at ₹50,000 or Rs1 lakh, depending on the category of depositor.

The issue arose due to a perceived narrowing of the definition of 'banking company' in the new Income-tax Act, 2025. While the earlier law explicitly included not just banking companies governed by the Banking Regulation Act, 1949 but also certain institutions covered under Section 51 of that Act, the new law omits this extended phrase.

This led to concerns that some cooperative banks or similar institutions might fall outside the definition and, consequently, lose the benefit of the TDS exemption threshold.

The clarification, however, puts these concerns to rest. It explains that even though the wording in Section 402 of the new Act appears narrower, the scope remains effectively unchanged. This is because institutions covered under Section 51 of the Banking Regulation Act continue to fall within the ambit of 'banking company' by virtue of that law itself.

As a result, such banks and banking institutions will continue to enjoy the same treatment under the new regime. Specifically, they will not be required to deduct TDS on interest payments below the prescribed threshold under Section 393(1) of the Income-tax Act, 2025.

The clarification ensures continuity and removes ambiguity for banks and depositors alike, especially senior citizens and small savers who benefit from the higher exemption limits.

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