CBDT Update: No TDS on Interest Earned from Mahila Samman Savings Certificate Scheme

On May 16, 2023, the CBDT issued a notification clarifying the taxation aspects of the Mahila Samman Savings Scheme. The notification states that TDS will be applicable to the interest earned from the MSSC (Mahila Samman Savings Certificate) Scheme under Section 194A of the Income Tax Act, 1961.

As per the notification issued by the Central Board of Direct Taxes (CBDT) Notifies: “In exercise of the powers conferred by sub-clause (c) of clause (i) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that the Scheme namely the Mahila Samman Savings Certificate, 2023, made in exercise of the powers conferred by section 3A of the Government Savings Promotion Act, 1873 (5 of 1873) and notified vide notification number G.S.R. 237(E) dated the 31st March, 2023 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), shall be a Scheme framed for the purposes of said sub-clause”

In the Union Budget 2023, Finance Minister Niramala Sitharaman announced this Mahila Samman Savings Certificate Scheme in commemoration of Azadi Ka Amrit Mahotsav. This is a women's-specific small savings scheme between April 1, 2023, to March 31, 2025. This scheme is only for 2 years, which gives the benefits to women. This scheme's minimum investment is Rs 1000, and its maximum investment is Rs 2 lakh. So this scheme provides the women with a fixed interest rate of 7.5% and the option of a partial withdrawal.

According to Neeraj Agarwal, who is a partner at Nangia Andersen India, "So at a 7.5% interest rate, the MSSC scheme will provide returns of Rs 15000 and Rs 32000, respectively, in two years. So the TDS will not be applicable as the interest earned in a financial year is less than Rs 40000; however, the interest will be added to the total income of the recipient for tax calculation, and if the sum exceeds the taxable limit, the tax at the applicable rate needs to be paid. The income tax department also notified us that this will come into force on the date of its publication in the official gazette, which is May 16, 2023.

Under Section 194A, TDS is applicable if the interest earned from this MSS scheme exceeds Rs 40,000 in a financial year. These interests can be earned from deposits held with a bank, post office, or cooperative society. This is the same way TDS is applicable to the interest that was earned by the bank's fixed deposits (FDs). So for women, the threshold limit is Rs. 40,000. And for senior citizens, the threshold is Rs. 50,000.