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Income-tax Act, 1961 · Chapter XVII: Collection and Recovery of Tax · B.—Deduction at source

Section 196: Interest or dividend or other sums payable to Government, Reserve Bank or certain Corporations

The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.

In plain words

This section stops people from deducting tax at source when paying money to specific entities. It applies to the Government, the Reserve Bank of India, certain corporations exempt from income tax, and specific Mutual Funds. If you pay interest, dividends, or other income to these groups, you do not withhold tax from the payment.

  • No tax deduction is required for sums payable to the Government.
  • No tax deduction is required for sums payable to the Reserve Bank of India.
  • No tax deduction is required for corporations established by a Central Act that are exempt from income tax.
  • No tax deduction is required for Mutual Funds specified under clause (23D) of section 10.
  • For Mutual Funds, the payment must be interest or dividend on securities or shares they own or have full beneficial interest in.
  • For Mutual Funds, the payment can also be any other income accruing or arising to it.

Example: If a company pays interest to the Reserve Bank of India, it does not deduct tax from that payment.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Official text

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.]

Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Supreme Court judgments citing the section 196