CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 196 — Interest or Dividend, etc., to Government, RBI or Certain Corporations (No Deduction)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A deduction-disabling provision; mechanical.
Finance Act, 2026: No amendment.
Mechanism: No tax is to be deducted from interest/dividend or other income payable to the Government, the RBI, a tax-exempt Central-Act corporation, or a section 10(23D) Mutual Fund.
Litigation profile: Negligible. A mechanical exclusion — the candour rule applies.
A. SECTION COMMENTARY
Section 196 is a deduction-disabling provision. It directs that, notwithstanding anything contained in the foregoing provisions of the Chapter, no deduction of tax shall be made by any person from any sums payable to (i) the Government, (ii) the Reserve Bank of India, (iii) a corporation established by or under a Central Act which is, under any law in force, exempt from income-tax on its income, or (iv) a Mutual Fund specified under section 10(23D), where such sum is payable by way of interest or dividend in respect of securities or shares owned by them or in which they have full beneficial interest, or any other income accruing or arising to them.
Rationale — no withholding on exempt or sovereign payees
The provision recognises that withholding tax from a payee whose income is itself exempt (the Government, the RBI, a tax-exempt statutory corporation, or a section 10(23D) Mutual Fund) would serve no purpose and would only generate refund claims. Section 196 therefore switches off the deduction obligation at source for these specified payees, leaving the position to be governed by their respective exemptions.
A mechanical exclusion — candour
Section 196 is mechanical and is rarely litigated; the only questions are whether a particular payee falls within one of the four enumerated classes (in particular, whether a corporation is one 'exempt from income-tax' for this purpose). In candour, there is no significant body of section 196 merits authority.
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.
196. Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to—
(i) the Government, or
(ii) the Reserve Bank of India, or
(iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income, or
(iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.
C. AUTHORITIES
Candour rule observed: section 196 is a mechanical deduction-disabling provision with no significant merits authority. The statutory scheme is set out.
No direct authority — statutory backdrop
Scope — the four enumerated payees
Principle: No deduction is to be made on sums (interest/dividend on securities or shares, or other income) payable to the Government, the RBI, a Central-Act corporation exempt from income-tax, or a section 10(23D) Mutual Fund; the only live question is whether the payee falls within these classes.
Use: Fixes the scope of the deduction-disabling rule.
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 196 — Interest or Dividend, etc., to Government, RBI or Certain Corporations (No Deduction)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A deduction-disabling provision; mechanical.
Finance Act, 2026: No amendment.
Mechanism: No tax is to be deducted from interest/dividend or other income payable to the Government, the RBI, a tax-exempt Central-Act corporation, or a section 10(23D) Mutual Fund.
Litigation profile: Negligible. A mechanical exclusion — the candour rule applies.
A. SECTION COMMENTARY
Section 196 is a deduction-disabling provision. It directs that, notwithstanding anything contained in the foregoing provisions of the Chapter, no deduction of tax shall be made by any person from any sums payable to (i) the Government, (ii) the Reserve Bank of India, (iii) a corporation established by or under a Central Act which is, under any law in force, exempt from income-tax on its income, or (iv) a Mutual Fund specified under section 10(23D), where such sum is payable by way of interest or dividend in respect of securities or shares owned by them or in which they have full beneficial interest, or any other income accruing or arising to them.
Rationale — no withholding on exempt or sovereign payees
The provision recognises that withholding tax from a payee whose income is itself exempt (the Government, the RBI, a tax-exempt statutory corporation, or a section 10(23D) Mutual Fund) would serve no purpose and would only generate refund claims. Section 196 therefore switches off the deduction obligation at source for these specified payees, leaving the position to be governed by their respective exemptions.
A mechanical exclusion — candour
Section 196 is mechanical and is rarely litigated; the only questions are whether a particular payee falls within one of the four enumerated classes (in particular, whether a corporation is one 'exempt from income-tax' for this purpose). In candour, there is no significant body of section 196 merits authority.
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.
196. Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to—
(i) the Government, or
(ii) the Reserve Bank of India, or
(iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income, or
(iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.
C. AUTHORITIES
Candour rule observed: section 196 is a mechanical deduction-disabling provision with no significant merits authority. The statutory scheme is set out.
No direct authority — statutory backdrop
Scope — the four enumerated payees
Principle: No deduction is to be made on sums (interest/dividend on securities or shares, or other income) payable to the Government, the RBI, a Central-Act corporation exempt from income-tax, or a section 10(23D) Mutual Fund; the only live question is whether the payee falls within these classes.
Use: Fixes the scope of the deduction-disabling rule.
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.