No TDS on co-op bank members

MUMBAI: The Central Board of Direct Taxes has ruled that TDS will not cut out the interest a ''member'' of a co-operative bank receives on deposits.
Besides all borrowers who are members of a co-operative bank, membership can be obtained through the purchase of at least one share of the bank. The exemption will apply to all kinds of deposits — savings, term and recurring — made by members, and only savings and recurring deposits of non-member savers.
The board, in a notification issued on September 11, said a "member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194 A by virtue of the exemption granted vide clause (V) of sub-section 3 of the said section."
The co-operative sector has welcomed the CBDT decision. "The long pending demand has finally been settled. The CBDT decision will benefit small depositors and shareholders in a falling interest scenario," Satish Marathe, CEO, Janakalyan Sahakari Bank, who was pursuing the issue with the CBDT, told ET.
Under section 194 A of the Income Tax Act 1961, tax is deductible at source from any payment of income by way of interest other than interest on securities. Clause V of sub section 3 of section 194 A exempt such income credited or paid by a co-operative society to a member thereof from the requirement of TDS.
On the issue of whether nominal members, associate members and sympathiser members would also come under the exemption, the CBDT has categorically said "The exemption is available only to such member who have joined in application for the registration of the co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules".
It further adds that a member eligible for exemption must have subscribed to and fully paid for at least one share of the co-operative bank and must be entitled to participate and vote in the general body or the special general body meeting of a co-operative bank. "He must be entitled to receive a share from the profits of the co-operative bank," says the notification.
However, the co-operative sector now expects the Union finance ministry to issue specific guidelines in the light of CBDT clarification to avoid litigation.