An Urban Cooperative Bank (engaged in the business of banking) made an FDR of 100 crores with Union Bank of India (UBI) at 2.5% p.a. interest as per…
CA Final · Direct Tax Laws and International Taxation · PYQS · September 2025
An Urban Cooperative Bank (engaged in the business of banking) made an FDR of 100 crores with Union Bank of India (UBI) at 2.5% p.a. interest as per RBI guidelines for maintaining capital adequacy ratio. The said Cooperative Bank is also maintaining a current account with UBI from which, it withdrew 4 crores in cash during the financial year 2024-25. The Cooperative Bank is filing its returns of income without any default.
Suggested Answer and Working Notes:
No deduction of tax under section 194A is to be made on interest income credited or paid to co-operative society engaged in banking business. Accordingly, Union Bank of India (UBI) is not required to deduct tax at source under section 194A on interest on FDR to Urban Co-operative Bank. Liability to deduct tax at source under section 194N shall not be applicable on payment made to co-operative society engaged in banking business. Accordingly, Union Bank of India (UBI) is also not required to deduct tax at source on cash withdrawal by Urban co-operative bank.
Topics: Deduction, Collection and Recovery of Tax
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