Section 196 Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations.


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As per Section 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—

  1. the Government, or
  2. the Reserve Bank of India, or
  3. 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
  4. 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.

Summary of Section 196 of the Income Tax Act:

  • This section overrules the entire chapter of TDS
  • No TDS is required to be deducted by any person from any sum payable to:
    • Government (Central and State Government)
    • RBI (Reserve Bank of India)
    • Corporation established under Central Act which is, under any law for the time being in force, exempt from income-tax on its income
    • Mutual Fund specified u/s section 10(23D)
  • Nature of payment:

Sum payable 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.

  • Point to be noted:

Corporation established under Central Act which is, under any law for the time being in force, exempt from income-tax on its income.

CBDT issue following circulars for Corporation established under Central Act which as under:

As per Circular No. 18/2017 dated 29th May 2017, The CBDT had earlier issued Circular No. 4/2002 dated 16th July 2002 & Circular No. 7/2015 dated 23rd April 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 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.

Further following all institutions are covered under Circular No. 18/2017 dated 29th May 2017 and section 10 of the Income Tax Act:

    1. “local authority”, as referred to in the Explanation to clause (20);
    2. Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA);
    3. Fund, by whatever name called, set up by the Life Insurance Corporation of India on or after Ist August, 1996, or by any other insurer referred to in clause (23AAB);
    4. Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB);
    5. Body or authority referred to in clause (23BBA);
    6. SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC);
    7. Insurance Regulatory and Development Authority referred to in clause (23BBE);
    8. Central Electricity Regulatory Commission referred to in clause (23BBG);
    9. Prasar Bharati referred to in clause (23BBH);
    10. 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);
    11. 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);
    12. Employees’ State Insurance Fund referred to in clause (25A);
    13. Agricultural Produce Marketing Committee referred to in clause (26AAB);
    14. Corporation, body, institution or association established for promoting interests of members of Scheduled Castes or Scheduled Tribes or backward classes referred to in clause (26B); No.385/01l2015-IT(B) Circular No. 18/2017
    15. Corporation established for promoting interests of members of a minority community referred to in clause (26BB);
    16. Corporation established for welfare and economic upliftment of ex-servicemen referred to in clause (26888);
    17. New Pension System Trust referred to in clause (44).

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