CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194A — Interest Other Than Interest on Securities (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Among the most frequently invoked TDS provisions; heavily litigated, largely on facts.
Finance Act, 2026: No amendment.
Mechanism: Any person (other than a small individual/HUF) paying interest other than interest on securities to a resident deducts tax at the earlier of credit or payment, subject to the thresholds and the exclusions in sub-section (3).
Litigation profile: High volume, but the law is concentrated on two gateways — the section 2(28A) meaning of 'interest' and the timing/exclusion rules. Fact-specific disputes predominate.
A. SECTION COMMENTARY
Section 194A is the general deduction provision for interest other than 'interest on securities'. Any person (other than an individual or HUF below the section 44AB limits) responsible for paying interest to a resident must deduct tax at the time of credit or payment, whichever is earlier. It is among the most frequently invoked TDS provisions — banks, NBFCs, companies and co-operative societies all operate under it — yet most of its litigation is fact-specific and is fought at the level of two recurring questions: whether the receipt is 'interest' within section 2(28A) at all, and whether and when the deduction obligation is triggered.
'Interest' means interest payable in any manner in respect of money borrowed or a debt incurred, including a deposit, claim or other similar right or obligation, and includes service fee or other charge in respect of such moneys. The definition is anchored in a debtor-creditor relationship arising from borrowed money or an incurred debt. A payment that is in substance compensation or damages for delay — for example interest awarded for delayed delivery of possession of a flat, which is not interest on a debt incurred — falls outside section 2(28A) and therefore outside section 194A, even though it is labelled 'interest'.
Timing and the 'credit to any account' deeming rule
The obligation arises at the earlier of credit and payment. The Explanation deems a credit of interest to an 'interest payable account', 'suspense account' or any other account in the payer's books to be a credit to the payee, so that the deduction cannot be deferred by parking the entry in a holding account. A genuine difficulty arises where, at the stage of a year-end provision, the payees are not identifiable and the amounts are not credited to any payee — a line of Tribunal and High Court authority holds that the deduction machinery cannot operate where the payee and the quantum are not ascertainable, although this is fact-sensitive and contested.
The statutory exclusions — sub-section (3)
Sub-section (3) carries the operative carve-outs: among them, interest below the threshold; interest paid by a co-operative society (other than a co-operative bank) to a member or to another co-operative society (clause (v)); interest credited or paid by way of compensation awarded by the Motor Accidents Claims Tribunal (clause (ix)) and interest paid on such compensation up to the prescribed limit (clause (ixa)); and various institutional payees. The co-operative carve-out has been the subject of sustained dispute: the exemption for co-operative-to-member payments does not shelter a co-operative bank paying interest to its depositor-members, which must deduct — a position reinforced by amendment and CBDT clarification.
Default, and deduction only on chargeable sums
Failure to deduct attracts section 201(1)/(1A), penalty under section 271C and disallowance under section 40(a)(ia). Two limiting principles temper the exposure: deduction is required only from a sum that bears the character of taxable interest; and where the payee has paid the tax, the deductor is not made to pay it again under section 201(1).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.
Explanation.—For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(2) Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.
(3) The provisions of sub-section (1) shall not apply—
(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed—
(a) fifty thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);
(b) fifty thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;
(c) fifty thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and
(d) ten thousand rupees in any other case:
Provided that in respect of the income credited or paid in respect of—
(a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or
(b) time deposits with a co-operative society engaged in carrying on the business of banking;
(c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be :
Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions:
Provided also that in case of payee being a senior citizen, the provisions of sub-clause (a), sub-clause (b), and sub-clause (c) shall have effect as if for the words " fifty thousand rupees", the words " 69-one lakh rupees" had been substituted.
Explanation.—***
(ii) ***
(iii) to such income credited or paid to—
(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or
(b) any financial corporation established by or under a Central, State or Provincial Act, or
(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or
(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or
(e) any company or co-operative society carrying on the business of insurance, or
(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;
(iv) to such income credited or paid by a firm to a partner of the firm;
(v) to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.
Explanation.—For the purposes of this clause, "co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;
(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(viia) to such income credited or paid in respect of,—
(a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;
(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause
(a), engaged in carrying on the business of banking;
(viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);
(ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;
(ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;
(x) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or infrastructure debt fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank;
(xi) to any income by way of interest referred to in clause (23FC) of section 10:
Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if—
(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than one lakh rupees in case of payee being a senior citizen and fifty thousand rupees in any other case.
Explanation 1.—For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (including recurring deposits) repayable on the expiry of fixed periods.
Explanation 2.—For the purposes of this sub-section, "senior citizen" means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.
(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.
(5) The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.
Explanation.—Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.
C. AUTHORITIES
The authorities are arranged by the questions that decide a section 194A dispute: the meaning of 'interest' (section 2(28A)); special categories (land-acquisition and MACT interest); the co-operative carve-out; and default. Much section 194A litigation is fact-specific; where the law is genuinely unsettled this is stated.
Cluster 1 — Is the receipt 'interest' within section 2(28A)?
Bikram Singh v. Land Acquisition Collector (1997) 224 ITR 551 (SC)
Issue: Whether interest on delayed payment of land-acquisition compensation is a taxable revenue receipt.
Held: Yes. Interest on delayed compensation is a revenue receipt exigible to tax; it is interest on a sum that the claimant was kept out of, and is chargeable accordingly.
Significance: Confirms the chargeability that underlies the section 194A deduction on such interest, and frames the section 2(28A) enquiry into whether a 'debt' relationship exists.
Compensation / damages interest outside section 2(28A) — the Ghaziabad Development Authority line
Principle: Interest awarded by way of compensation or damages for delay (for instance, for delayed delivery of possession), as distinct from interest on money borrowed or a debt incurred, does not answer the definition of 'interest' in section 2(28A) and is not subject to deduction under section 194A.
Use: The standard answer where a payment labelled 'interest' is in substance compensation; it turns on the section 2(28A) gateway, not on the rate.
Cluster 2 — Interest awarded by the Motor Accidents Claims Tribunal
Court on its own Motion v. CIT (2014) 363 ITR 102 (Del)
Issue: The deduction of tax at source on interest awarded by Motor Accidents Claims Tribunals and the hardship to claimants.
Held: The High Court issued directions regulating TDS on MACT interest, recognising the special position of accident claimants; the statutory scheme now exempts interest credited on MACT compensation (clause (ix)) and exempts interest paid on such compensation up to the prescribed limit (clause (ixa)).
Significance: The leading authority read together with the section 194A(3)(ix)/(ixa) exemptions for MACT interest.
Cluster 3 — The co-operative society / co-operative bank carve-out (section 194A(3)(v)/(viia))
This carve-out is contested and has been narrowed by amendment; the position is stated candidly.
Co-operative society to member — and the co-operative-bank exception
Principle: Clause (v) exempts interest paid by a co-operative society (other than a co-operative bank) to a member or to another co-operative society. The exemption does not extend to a co-operative bank paying interest to its depositor-members: such a bank must deduct, a position put beyond doubt by the express exclusion of co-operative banks and by CBDT clarification.
Use: Resolves the most common section 194A question faced by co-operative credit institutions; the line is between a co-operative society proper and a co-operative bank.
Cluster 4 — Scope and default consequences (cognate)
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: The deduction obligation under the Chapter operates only on a sum that is chargeable to tax under the Act; tax at source is not deductible from a payment that does not bear income chargeable to tax.
Use: Though decided under section 195, the principle that TDS attaches only to chargeable sums applies with equal force to section 194A.
Principle: Where the payee has paid the tax on the interest, the deductor cannot be required to pay the same tax again under section 201(1); compensatory interest under section 201(1A) runs for the period of default.
Use: Caps the deductor's exposure for a failure to deduct under section 194A.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194A — Interest Other Than Interest on Securities (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Among the most frequently invoked TDS provisions; heavily litigated, largely on facts.
Finance Act, 2026: No amendment.
Mechanism: Any person (other than a small individual/HUF) paying interest other than interest on securities to a resident deducts tax at the earlier of credit or payment, subject to the thresholds and the exclusions in sub-section (3).
Litigation profile: High volume, but the law is concentrated on two gateways — the section 2(28A) meaning of 'interest' and the timing/exclusion rules. Fact-specific disputes predominate.
A. SECTION COMMENTARY
Section 194A is the general deduction provision for interest other than 'interest on securities'. Any person (other than an individual or HUF below the section 44AB limits) responsible for paying interest to a resident must deduct tax at the time of credit or payment, whichever is earlier. It is among the most frequently invoked TDS provisions — banks, NBFCs, companies and co-operative societies all operate under it — yet most of its litigation is fact-specific and is fought at the level of two recurring questions: whether the receipt is 'interest' within section 2(28A) at all, and whether and when the deduction obligation is triggered.
'Interest' is a defined term — section 2(28A)
'Interest' means interest payable in any manner in respect of money borrowed or a debt incurred, including a deposit, claim or other similar right or obligation, and includes service fee or other charge in respect of such moneys. The definition is anchored in a debtor-creditor relationship arising from borrowed money or an incurred debt. A payment that is in substance compensation or damages for delay — for example interest awarded for delayed delivery of possession of a flat, which is not interest on a debt incurred — falls outside section 2(28A) and therefore outside section 194A, even though it is labelled 'interest'.
Timing and the 'credit to any account' deeming rule
The obligation arises at the earlier of credit and payment. The Explanation deems a credit of interest to an 'interest payable account', 'suspense account' or any other account in the payer's books to be a credit to the payee, so that the deduction cannot be deferred by parking the entry in a holding account. A genuine difficulty arises where, at the stage of a year-end provision, the payees are not identifiable and the amounts are not credited to any payee — a line of Tribunal and High Court authority holds that the deduction machinery cannot operate where the payee and the quantum are not ascertainable, although this is fact-sensitive and contested.
The statutory exclusions — sub-section (3)
Sub-section (3) carries the operative carve-outs: among them, interest below the threshold; interest paid by a co-operative society (other than a co-operative bank) to a member or to another co-operative society (clause (v)); interest credited or paid by way of compensation awarded by the Motor Accidents Claims Tribunal (clause (ix)) and interest paid on such compensation up to the prescribed limit (clause (ixa)); and various institutional payees. The co-operative carve-out has been the subject of sustained dispute: the exemption for co-operative-to-member payments does not shelter a co-operative bank paying interest to its depositor-members, which must deduct — a position reinforced by amendment and CBDT clarification.
Default, and deduction only on chargeable sums
Failure to deduct attracts section 201(1)/(1A), penalty under section 271C and disallowance under section 40(a)(ia). Two limiting principles temper the exposure: deduction is required only from a sum that bears the character of taxable interest; and where the payee has paid the tax, the deductor is not made to pay it again under section 201(1).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.
Explanation.—For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(2) Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.
(3) The provisions of sub-section (1) shall not apply—
(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed—
(a) fifty thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);
(b) fifty thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;
(c) fifty thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and
(d) ten thousand rupees in any other case:
Provided that in respect of the income credited or paid in respect of—
(a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or
(b) time deposits with a co-operative society engaged in carrying on the business of banking;
(c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be :
Provided further that the amount referred to in the first proviso shall be computed with reference to the income credited or paid by the banking company or the co-operative society or the public company, as the case may be, where such banking company or the co-operative society or the public company has adopted core banking solutions:
Provided also that in case of payee being a senior citizen, the provisions of sub-clause (a), sub-clause (b), and sub-clause (c) shall have effect as if for the words " fifty thousand rupees", the words " 69-one lakh rupees" had been substituted.
Explanation.—***
(ii) ***
(iii) to such income credited or paid to—
(a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or
(b) any financial corporation established by or under a Central, State or Provincial Act, or
(c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or
(d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or
(e) any company or co-operative society carrying on the business of insurance, or
(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;
(iv) to such income credited or paid by a firm to a partner of the firm;
(v) to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.
Explanation.—For the purposes of this clause, "co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette;
(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(viia) to such income credited or paid in respect of,—
(a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank;
(b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause
(a), engaged in carrying on the business of banking;
(viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);
(ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;
(ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;
(x) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or infrastructure debt fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank;
(xi) to any income by way of interest referred to in clause (23FC) of section 10:
Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if—
(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than one lakh rupees in case of payee being a senior citizen and fifty thousand rupees in any other case.
Explanation 1.—For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (including recurring deposits) repayable on the expiry of fixed periods.
Explanation 2.—For the purposes of this sub-section, "senior citizen" means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.
(4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.
(5) The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.
Explanation.—Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.
C. AUTHORITIES
The authorities are arranged by the questions that decide a section 194A dispute: the meaning of 'interest' (section 2(28A)); special categories (land-acquisition and MACT interest); the co-operative carve-out; and default. Much section 194A litigation is fact-specific; where the law is genuinely unsettled this is stated.
Cluster 1 — Is the receipt 'interest' within section 2(28A)?
Bikram Singh v. Land Acquisition Collector (1997) 224 ITR 551 (SC)
Issue: Whether interest on delayed payment of land-acquisition compensation is a taxable revenue receipt.
Held: Yes. Interest on delayed compensation is a revenue receipt exigible to tax; it is interest on a sum that the claimant was kept out of, and is chargeable accordingly.
Significance: Confirms the chargeability that underlies the section 194A deduction on such interest, and frames the section 2(28A) enquiry into whether a 'debt' relationship exists.
Compensation / damages interest outside section 2(28A) — the Ghaziabad Development Authority line
Principle: Interest awarded by way of compensation or damages for delay (for instance, for delayed delivery of possession), as distinct from interest on money borrowed or a debt incurred, does not answer the definition of 'interest' in section 2(28A) and is not subject to deduction under section 194A.
Use: The standard answer where a payment labelled 'interest' is in substance compensation; it turns on the section 2(28A) gateway, not on the rate.
Cluster 2 — Interest awarded by the Motor Accidents Claims Tribunal
Court on its own Motion v. CIT (2014) 363 ITR 102 (Del)
Issue: The deduction of tax at source on interest awarded by Motor Accidents Claims Tribunals and the hardship to claimants.
Held: The High Court issued directions regulating TDS on MACT interest, recognising the special position of accident claimants; the statutory scheme now exempts interest credited on MACT compensation (clause (ix)) and exempts interest paid on such compensation up to the prescribed limit (clause (ixa)).
Significance: The leading authority read together with the section 194A(3)(ix)/(ixa) exemptions for MACT interest.
Cluster 3 — The co-operative society / co-operative bank carve-out (section 194A(3)(v)/(viia))
This carve-out is contested and has been narrowed by amendment; the position is stated candidly.
Co-operative society to member — and the co-operative-bank exception
Principle: Clause (v) exempts interest paid by a co-operative society (other than a co-operative bank) to a member or to another co-operative society. The exemption does not extend to a co-operative bank paying interest to its depositor-members: such a bank must deduct, a position put beyond doubt by the express exclusion of co-operative banks and by CBDT clarification.
Use: Resolves the most common section 194A question faced by co-operative credit institutions; the line is between a co-operative society proper and a co-operative bank.
Cluster 4 — Scope and default consequences (cognate)
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: The deduction obligation under the Chapter operates only on a sum that is chargeable to tax under the Act; tax at source is not deductible from a payment that does not bear income chargeable to tax.
Use: Though decided under section 195, the principle that TDS attaches only to chargeable sums applies with equal force to section 194A.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC)
Principle: Where the payee has paid the tax on the interest, the deductor cannot be required to pay the same tax again under section 201(1); compensatory interest under section 201(1A) runs for the period of default.
Use: Caps the deductor's exposure for a failure to deduct under section 194A.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.