As per Section 196 of Income tax act, 1961, no deduction of tax shall be made by any person from any sums payable to—

1. Government (i.e. State and Central Government)
2. RBI
3. Corporation established under central act which is, under any law for the time being in force, exempt from income-tax on its income, or
4. Mutual fund specified under section 10(23D)

Section 196 reads as under:

Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations.

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.

The meaning of corporations established under central Act is discussed in Circular No. 18/2017. As per the said Circular No.18/2017, CBDT had referred earlier issued Circular No. 4/2002 Dated 16.07.2002 and Circular No. 7/2015 dated 23 .04.2015 which had laid down that in case of such entities,

1. whose income is unconditionally exempt under Section 10 of the Income-tax Act and
2. who are also statutorily not required to file return of income as per Section 139 of the Act,
   there would be no requirement for tax deduction at source (TDS) from the payments made to them since their income is anyway exempted from tax under the Act.I

There are some institutions which are getting covered by virtue of above Circular 18/2017, as under:

(i) “local authority”, as referred to in the Explanation to clause (20);

(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA);

(iii) Fund, by whatever name called, set up by the Life insurance Corporation of India on or after 1st August, 1996, or by any other insurer referred to in clause (23AAB);

(iv) Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB);

(v) Body or authority referred to in clause (23BBA);

(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC);

 (vii) lnsurance Regulatory and Development Authority referred to in clause (23BBE);

(viii) Central Electricity Regulatory Commission referred to in clause (23BBG);

(ix) Prasar Bharati referred to in clause (23BBH);

(x) Prime Minister’s National Relief Fund referred to in sub-clause

(i), Prime Minister’s Fund (Promotion of Folk Art) referred to in sub-clause

(ii), Prime Minister’s Aid to Students Fund referred to in sub-clause

(iii), National Foundation for Communal Harmony referred to in sub-clause

(iiia), Swachh Bharat Kosh referred to in sub clause

(iiiaa), Clean Ganga Fund referred to in sub-clause

(iiiaaa) of clause (23C);

(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause

(i), recognized provident fund referred to in sub-clause

(ii), approved superannuation funds referred to in sub-clause

(iii), approved gratuity fund referred to in sub-clause

(iv) and funds referred to in sub-clause (v) of clause (25);

(xii) Employees’ State Insurance Fund referred to in clause (25A);

(xiii) Agricultural Produce Marketing Committee referred to in clause (26AAB);

(xiv) Corporation, body, institution or association established for promoting interests of members of Scheduled Castes or ScheduIed Tribes or backward classes referred to in clause (26B);

(xv) Corporation established for promoting interests of members of a minority community referred to in clause (26BB);

(xvi) Corporation established for welfare and economic upliftment of ex-servicemen referred to in clause (26888);

(xvii) New Pension System Trust referred to in clause (44)

For easeof reference, the copy of the above referred circular NO. 18/2017 is produced hereunder:

CIRCULAR No. 18/2017

1. No. 385/01/2015-IT (B)
   Government of India
   Ministry of Finance
   Department of Revenue
   Central Board of Direct Taxes

North Block, New Delhi 29th May, 2017

Subject: Requirement of tax deduction at source in case of entities whose income is exempted under Section 10 of the Income-tax Act, 1961 – Exemption thereof.

The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 4/2002 dated 16.07.2002 and Circular No. 7/2015 dated 23.04.2015 which laid down that in case of such entities, whose income is unconditionally exempt under Section 10 of the Income-tax Act (the Act) and who are also statutorily not required to tile return of income as per Section 139 of the Act, there would be no requirement for tax deduction at source (TDS) from the payments made to them since their income is anyway exempted from tax under the Act. The issue of whether exemption from TDS can be extended to more entities on these principles and whether the exemption is needed to be withdrawn in respect of some of the exempted entities was examined by the Board.

2. Examination of the eligibility of entities for exemption from TDS on the principle of unconditional exemption and no requirement to file return revealed that Circulars No. 4/2002 and 7/2015 are required to be updated to make the following changes:

• Entities that meet both the above mentioned conditions but are not mentioned in the aforesaid Circulars need to be included in the list of exempted entities.
• Entities that are mentioned in Circular No. 4/2002 but their exemption from income tax has since been withdrawn need to be removed from the list of exempted entities.
• Entities that are mentioned in Circular No. 4/2002 but because of subsequent amendment they are now required to mandatorily the their returns of income u/s 139 need to be removed from the list of exempted entities.

3. In view of the above, a revised list of entities exempted from TDS has been drawn by adding entities in the first category listed above to the entities mentioned in Circular No. 4/2002 and Circular No. 7/2015 and removing entities in second and third categories from the list of existing entities eligible for exemption from TDS.
4. Accordingly, it has been decided that in case of below mentioned funds or authorities or Boards or bodies, by whatever name called, referred to in section 10 of the Income-tax Act, whose income is unconditionally exempt under that section and who are also statutorily not required to tile return of income as per section 139 of the Income-tax Act, there would be no requirement for tax deduction at source, since their income is anyway exempt under the Income-tax Act –

(i) “local authority”, as referred to in the Explanation to clause (20);

(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA);

(iii) Fund. by whatever name called, set up by the Life Insurance Corporation of India on or after 1st August, 1996, or by any other insurer referred to in clause (23AA B);

(iv) Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB);

(v) Body or authority referred to in clause (23BBA);

(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC);

(vii) Insurance Regulatory and Development Authority referred to in clause (23BBE):

(viii)Central Electricity Regulatory Commission referred to in clause (23BBG);

(ix) Prasar Rharati referred to in clause (23BBH);

(x) Prime Minister’s National Relief Fund referred to in sub-clause (i), Prime Minister’s Fund (Promotion of Folk Art) referred to in sub-clause (it), Prime Minister’s Aid to Students Fund referred to in sub-clause (iii), National Foundation for Communal Harmony referred to in sub-clause (ilia), Swachh Bharat Kosh referred to in sub-clause (iiiaa), Clean Ganga Fund referred to in sub-clause (iiiaaa) of clause (23C);

(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i), recognized provident fund referred to in sub-clause (ii), approved superannuation funds referred to in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);

(xii) Employees’ State Insurance Fund referred to in clause (25A);

(xiii) Agricultural Produce Marketing Committee referred to in clause (26AAB);

(xiv) Corporation. body, institution or association established for promoting interests of members of Scheduled Castes or Scheduled Tribes or backward classes referred to in clause (2613);

(xv) Corporation established for promoting interests of members of a minority community referred to in clause (26B13);

(xvi) Corporation established for welfare and economic upliftment of ex-servicemen referred to in clause (2OBBB);

(xvii) New Pension System Trust referred to in clause (44).

4. This circular supersedes earlier Circulars on this issue e.g. Circular No. 4/2002 dated 16.07.2002 and Circular No. 7/2015 dated 23.04.2015 with effect from the date of issue of this Circular.
5. Hindi version shall follow.

(Sandeep Singh)

Under Secretary to the Govt. of India

Tele: 2309 4182

Email: sandeep.singh68@nic.in