Whether interest payments under Land Acquisition Act are covered by section 194A - Income Tax - 526/1988

Whether interest payments under Land Acquisition Act are covered by section 194A Circular No. 526 Dated 5/12/1988 1. According to section 194A of the Income-tax Act, 1961, any person, not being an individual or HUF, who is responsible for paying to a resident any income by way of interest other than income by way of "Interest on securities" shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. The provisions contained therein are however subject to the exceptions provided in the said section. According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 194A shall pay, within the prescribed time, the sum so deducted to the credit of Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of Central Government, he shall be liable to action in accordance with the provisions of section 201. In this connection attention is also invited to the provisions of section 276B of the Income-tax Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987 according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine. 2. It has come to notice that various State Development Authorities, the Housing Boards, Public Works Department, etc., acquire immovable property from the public for the purpose of their developmental activities. Huge amounts are disbursed on behalf of these departments as payments of compensation for land acquired including considerable amount of interest on excess compensation as per the Land Acquisition Act. The interest payment made under the Land Acquisition Act are covered by the provisions of section 194A. As a result tax will have to be deducted at source under section 194A from the interest payments made to the public under the Land Acquisition Act. Circular : No. 526, dated 5-12-1988 .