Income Tax Department Issues Clarity on TDS for Interest Income Under New Act

The Income Tax Department has provided crucial clarification regarding the definition of 'banking company' eligible to deduct Tax Deducted at Source (TDS) on interest income, excluding interest on securities. This clarification is in the context of the new Income-tax Act, 2025, which takes effect from April 1, 2026, replacing provisions of the Income-tax Act, 1961.

Refined Definition and Impact on TDS

Under the new Income-tax Act, 2025, the definition of a 'banking company' has been refined. This impacts the applicability of TDS on interest income, particularly concerning thresholds for general taxpayers and senior citizens. Previously, the term 'banking company' had a broad scope under the 1961 Act. The new Section 393(1) [Table: Sl. No. 5(ii)] and Section 402 of the 2025 Act now provide the corresponding provisions and definition.

Implications for Taxpayers and Banks

This clarification means that banks (banking companies) must adhere to the new definition when deducting TDS on interest income from April 1, 2026. Taxpayers, especially senior citizens who often rely on Form 15H for TDS exemption, should be aware of these changes. If a bank has not deducted TDS due to a submitted Form 15H, taxpayers must self-assess their tax liability and clear any dues before filing their return to avoid interest penalties.