Clause 72 of the Finance Bill, 2026 proposes multiple amendments to section 393 of the Income-tax Act, 2025, which governs tax deduction at source (TDS) on interest income.
The proposed changes expand existing TDS exemptions, introduce procedural facilitation for depository-held securities, and make consequential cross-reference corrections. The amendments have staggered effective dates, applying from 1 April 2026 and 1 April 2027, depending on the provision.
Overview of Amendments Proposed in Clause 72
Clause 72 covers the following key changes:
- Consequential cross-reference amendment in section 393(1)
- TDS exemption for interest paid to co-operative banks
- TDS exemption for interest on MACT compensation for individuals
- Insertion of new sub-section (6A) enabling declaration through depositories
- Consequential amendments in section 393(7)
1. TDS Exemption on Interest Paid to Co-operative Banks
What is amended
Section 393(4) (Table – Sl. No. 7, Column C, clause (a)(i)) is amended to provide that:
No tax shall be deducted at source on interest income (other than interest on securities) paid or credited to any co-operative society engaged in the business of banking, including a co-operative land mortgage bank.
Meaning and scope
- Applies only to interest income other than interest on securities
- Covers co-operative banks and co-operative land mortgage banks
- Relief is limited to TDS mechanism, not taxation of income
Implications
- Payers are relieved from TDS compliance for such interest payments
- Co-operative banks receive interest without upfront tax deduction
- Aligns treatment of co-operative banks with other banking institutions
Effective date
✔ Applicable from 1 April 2026. Applies from tax year 2026-27 onwards
2. TDS on Interest Awarded by Motor Accidents Claims Tribunal (MACT)
What is amended
Clause (b)(c)(iv) of section 393(4) (Table – Sl. No. 7) is amended to provide:
- No TDS on interest paid or credited on MACT compensation where the deductee is an individual
- For non-individual deductees, the existing ₹50,000 threshold continues
Implications
- Individuals receiving MACT compensation will get interest without TDS deduction
- Continues differential treatment based on category of deductee
- Reduces hardship in compensation-related receipts
Effective date
✔ Applicable from 1 April 2026. Applies from tax year 2026-27 onwards
3. Depository-Based Declaration Mechanism – New Section 393(6A)
What is proposed
A new sub-section (6A) is inserted to allow:
- Depositories to accept declarations from assessees under section 393(6)
- Forward such declarations to the person responsible for paying income
- Within a prescribed time limit
Scope and conditions
This facility is available only if:
- Securities are held with a depository as defined under the Depositories Act, 1996
- Securities are listed on a recognised stock exchange in India
- Income relates to section 393(1) [Table Sl. Nos. 4(i), 5(i), and 7]
Implications
- Simplifies declaration flow for investors in dematerialised securities
- Reduces operational burden on payers
- Introduces system-driven compliance instead of manual submission
Effective date
✔ Applicable from 1 April 2027. Applies from tax year 2027-28 onwards
4. Consequential Amendments
- Section 393(1): Cross-reference corrections
- Section 393(7): Consequential changes to support new sub-section (6A)
These amendments are procedural in nature and ensure internal consistency within section 393.
Effective Date Summary
| Amendment | Effective from | Tax year |
| Co-operative bank interest TDS exemption | 1 April 2026 | 2026-27 |
| MACT interest exemption (individuals) | 1 April 2026 | 2026-27 |
| Depository declaration mechanism (393(6A)) | 1 April 2027 | 2027-28 |
Conclusion
Clause 72 of the Finance Bill, 2026 introduces targeted and compliance-oriented amendments to section 393 of the Income-tax Act, 2025. Rather than altering tax incidence, the changes:
- Expand TDS exemptions in specific hardship and banking-related cases
- Improve procedural efficiency through depository-based declarations
- Ensure internal consistency within the TDS framework
Overall, the amendments reflect a refinement of withholding tax administration, with tangible compliance relief for payers and recipients alike.
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