Applicability of TDS on interest on compensation
The Punjab and Haryana High Court in the case of New India Assurance Company Limited versus Ravinder Kumar Vickey and Others has held that the Insurance Company is not required to deduct TDS on the interest on the compensation awarded to the claimant up till 01.06.2015, even if the interest amount exceeds Rs.50,000/- per claimant in the financial year.
The Single bench of the High Court opined that Section 194A of the Act is only a provision for deduction of tax at source.
Any provision for deduction of tax at source in the said section would not govern the taxability of the receipt. The question of deduction of tax at source would arise only if the payment is in the nature of income of the payee.
Accordingly, the above petition is dismissed and the others are disposed of by setting aside the impugned orders and the cases are remanded back to the concerned Motor Accident Claims Tribunal with a direction that if the interest on compensation is paid prior to 1.6.2015, then the Insurance Company will pay the amount of tax deducted at source to claimants and the Insurance Company may seek refund from the Income Tax Authorities by filing a revised income tax return.
Where the interest on the compensation is actually paid after 1.6.2015, which is exceeding Rs.50,000/- per claimant per financial year, the Insurance Company will pay on securing the ‘Form 15-G’ of Rule 29-C of the Income Tax Act/Rules.
The copy of the Order is as under: