Section 194N Exemption for Foreign Representations: Key Highlights of the New Income-Tax Notification

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  On 28th November 2024 , the Ministry of Finance issued Notification No. 123/2024 , bringing clarity to the applicability of Section 194N of the Income-tax Act, 1961. The notification exempts specified foreign representations from the provisions of this section, reinforcing India's commitment to international diplomatic norms and global cooperation. Effective from 1st December 2024 , this move comes after due consultation with the Reserve Bank of India (RBI) and aligns with international protocols such as the Vienna Convention and the United Nations Privileges and Immunities Act . Understanding Section 194N of the Income-tax Act Section 194N mandates tax deduction at source (TDS) on cash withdrawals exceeding ₹1 crore in a financial year . The provision applies to withdrawals from banks, co-operative banks, and post offices, aiming to curb cash usage and promote digital transactions. Fifth Proviso to Section 194N The fifth proviso grants the Central Government the authority ...
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Understanding RBI Guidelines on Payment of Interest for Overdue and Frozen NBFC Deposits

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The Reserve Bank of India (RBI) periodically issues directions to non-banking financial companies (NBFCs) on managing public deposits, especially in cases involving regulatory freezes or government seizures. One such circular, issued in 2013 (Circular DNBS.PD/CC.No.350/03.02.001/2013-14), laid out guidelines for handling public deposits that have been frozen or seized by government authorities. The objective was to ensure proper interest payment practices and compliance, protecting both depositor rights and regulatory transparency.

This article delves into the procedural requirements and key points of the RBI’s 2013 circular, which clarified the payment of interest on deposits impacted by government action, including steps NBFCs must follow to manage such accounts.

Key Provisions for Managing Frozen and Seized Deposits

1. Obtaining Customer Request for Renewal on Maturity

For frozen or seized deposits, NBFCs are required to obtain a written request from the depositor upon maturity if the customer wants to renew the deposit. This is an essential step as it ensures that depositors can exercise some control over their funds, even when impacted by external government action.

  • Advising Term Options: When NBFCs request a renewal letter, they must also inform the customer about selecting the term length for renewal. If the customer does not specify a term, NBFCs are allowed to renew the deposit for the same term as the original deposit.

2. Renewal Procedure Without Issuing a New Receipt

According to RBI guidelines, NBFCs need not issue a new deposit receipt upon renewal. Instead, they can make a note of the renewal in their deposit ledger, simplifying administrative processes while maintaining accurate records.

  • Record-Keeping in the Deposit Ledger: This measure reduces paperwork while ensuring that all relevant information about the deposit's renewal and status is easily accessible in the NBFC’s records.

3. Notification to Government Authorities on Renewal

NBFCs must notify the relevant government department about the renewal of the frozen deposit via registered mail, speed post, or courier service, with a copy to the depositor. This is crucial for keeping both the depositor and the authorities informed of the deposit's status, term, and applicable interest rate.

  • Transparency in Communication: Notifying the authorities through official channels ensures transparency and helps prevent misunderstandings or potential compliance issues.

4. Interest Calculation for Overdue Deposits

If the deposit is overdue, NBFCs follow different protocols depending on the period:

  • Renewal Within 14 Days: If the overdue period does not exceed 14 days from the date the customer submits the request, the NBFC can renew the deposit from the original maturity date. This minimizes the potential loss of interest for the depositor.

  • Interest Payment Beyond 14 Days: If the overdue period exceeds 14 days, NBFCs can pay interest on the overdue period as per their internal policy. This interest must be held in a separate interest-free sub-account, only to be released once the government clears the deposit’s release.

5. Final Repayment Conditions

The circular emphasizes that final repayment of both the principal and the accrued interest can only occur after NBFCs receive the required clearance from the concerned government authority. This measure ensures that NBFCs remain compliant with government orders while safeguarding depositor funds until release.

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