Notification sub section (1F) of section 197A of the Income tax Act 1961

## Policy Analysis Report: Income Tax Exemption for Scheduled Tribes - Notification No. 1102021F. No. 275272021ITB **1. Executive Summary:** This report analyzes a notification issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes (CBDT), which provides an exemption from tax deduction at source (TDS) under Section 194A of the Income-tax Act, 1961, on interest payments made by scheduled banks to members of Scheduled Tribes residing in specified areas. The exemption is subject to certain conditions, including a payment limit of twenty lakh rupees per year and reporting requirements for the payer. This notification aims to reduce the tax burden on Scheduled Tribe members receiving interest income from scheduled banks within specified areas. **2. Introduction:** This report provides a detailed analysis of Notification No. 1102021F. No. 275272021ITB, issued by the CBDT on September 17, 2021. The analysis focuses on the key provisions, target audience, implementation aspects, and expected outcomes based solely on the information provided in the notification text. **3. Policy Overview:** This is a new policy providing exemption from tax deduction on certain payments to a specific group of people under certain conditions. * **Core Objective(s):** The core objective, as inferred from the text, is to exempt interest income (excluding interest on securities) earned by members of Scheduled Tribes residing in specified areas from tax deduction at source (TDS) under Section 194A of the Income-tax Act, 1961, thereby potentially easing their tax burden. **4. Background and Rationale:** The policy addresses the financial situation of Scheduled Tribe members residing in specified areas. The notification suggests that the Central Government recognizes the need to provide tax relief on interest income earned by this group, potentially to encourage financial inclusion and support their economic well-being. The exemption likely aims to alleviate the immediate tax burden on smaller interest incomes earned by these individuals. **5. Key Provisions / Changes:** As this is a new policy, the main components and rules are as follows: * **Exemption from TDS:** No tax deduction is required under Section 194A on interest payments (other than interest on securities) made by a scheduled bank to a member of a Scheduled Tribe residing in a specified area as defined in clause 26 of section 10 of the Income-tax Act, 1961. * **Conditions for Exemption:** The exemption is subject to the following conditions: * The payer (scheduled bank) must verify that the receiver (Scheduled Tribe member) is indeed a member of the Scheduled Tribe residing in the specified area and that the income accrues/arises under clause 26 of section 10, requiring documentary evidence. * The payer must report the payment in the statements of tax deduction as per sub-section 3 of section 200 of the Income-tax Act, 1961. * The aggregate payment to the receiver during the previous year must not exceed twenty lakh rupees. * **Definition of Scheduled Bank:** The term "scheduled bank" has the same meaning as defined in clause (e) of section 2 of the Reserve Bank of India Act, 1934. * **Effective Date:** The notification is effective from the date of its publication in the Official Gazette (September 17, 2021). **6. Target Audience and Stakeholders:** The primary target audience and stakeholders are: * **Scheduled Banks:** As payers of interest income, they are responsible for complying with the notification's provisions, including verifying the receiver's status, reporting the payments, and ensuring the payment limit is not exceeded. * **Members of Scheduled Tribes:** As receivers of interest income, they are the direct beneficiaries of the exemption. They must provide the necessary documentation to the banks to prove their eligibility. **7. Implementation Aspects (Inferred):** * **Responsible Agency/Bodies:** The Central Board of Direct Taxes (CBDT), Ministry of Finance, Department of Revenue is the responsible agency. Scheduled Banks are responsible for the implementation of this policy. * **Timelines/Procedures:** The notification is effective from the date of its publication in the Official Gazette. Scheduled banks must incorporate the changes into their systems and processes for TDS deduction and reporting. Banks need to create and implement procedures for obtaining and verifying necessary documentary evidence from their customers. **8. Expected Outcomes / Impact of Changes:** The likely intended outcomes of this policy are: * **Reduced Tax Burden:** Alleviate the tax burden on members of Scheduled Tribes receiving interest income from scheduled banks. * **Increased Disposable Income:** Increase the disposable income of Scheduled Tribe members, potentially stimulating economic activity within the specified areas. * **Simplified Compliance:** Simplify the compliance process for Scheduled Tribe members regarding tax deductions on their interest income. * **Financial Inclusion:** Potentially encourage greater financial inclusion of Scheduled Tribe members by making bank deposits more attractive. **9. Conclusion:** Notification No. 1102021F. No. 275272021ITB provides a targeted tax exemption on interest income for members of Scheduled Tribes residing in specified areas. This exemption is subject to specific conditions, including a payment threshold and reporting requirements. The policy aims to reduce the tax burden on this vulnerable group and potentially promote their economic well-being. Scheduled banks must implement the necessary changes to comply with the provisions of this notification.

Key Entities Referenced