The court-deposit facts are essential
CBDT Circular 23/2015 dated 28 December 2015 clarifies that interest on FDRs made in the Registrar General’s or depositor’s name on a court’s directions is not subject to TDS until the court decides the matter. Once the court decides ownership of the money in the deposit, section 194A applies to the recipient of the income. This is a specific court-directed deposit clarification, not a general exemption for disputed money or all litigation-related deposits.
Read the applicable text: CBDT Circular 23/2015 Income Tax Department transition guidance.
Identify the order and the deposit
Retain the direction requiring the FDR, deposit holder, account identifiers, case reference and subsequent orders. The fact that a company voluntarily deposits money while litigation is pending does not by itself establish the circular’s conditions. Examine the actual directions and ownership position rather than a narration saying court deposit in the ledger.
Separate unresolved ownership from a known recipient
The circular explains the uncertainty about the ultimate beneficiary pending the court’s decision. Review orders that determine entitlement, even if other proceedings or administrative steps continue. Do not assume that the clarification remains available indefinitely because the accounts team has not processed an order. Equally, a party’s claim to the funds is not itself a final ownership decision.
Maintain principal and interest separately
Reconcile original deposit, additional deposits, interest credited, renewals, withdrawals and closing funds. A rollover FDR may incorporate prior interest into its new principal field; preserve the underlying history rather than treating the whole renewed amount as fresh income or losing the interest identity. The examples below assume the stated bank and order figures are verified and do not determine the recipient’s taxable year or income head.
Ownership determination changes the compliance review
Once the relevant ownership decision is made, establish the recipient and apply section 194A on its actual conditions. Verify applicable thresholds, rate, recipient details and reporting for the stated period separately; the circular does not supply a universal rate or make principal subject to interest TDS merely because funds are released together. Do not treat withholding deferral as permanent exemption or as a ruling that the interest is never taxable.
Use the right period and evidence
This article concerns FY 2025–26 / AY 2026–27 under the 1961 Act transition framework. Keep the ownership chronology and deposit-to-interest bridge with the tax working. Where entitlement, timing or reporting remains disputed, record the issue and seek the actual orders or applicable guidance rather than uploading a computation based on an assumed beneficiary.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Deposit and interest
A company’s court-directed FDR has verified original principal ₹20 lakh and accumulated interest ₹2 lakh, total ₹22 lakh. Preserve the ₹20 lakh/₹2 lakh distinction. The entire ₹22 lakh is not automatically interest merely because released in one amount.
Illustrative example 2: Renewal history
Original principal ₹10 lakh plus interest ₹80,000 is rolled into a renewed FDR showing ₹10.80 lakh. A further ₹60,000 interest produces ₹11.40 lakh total funds. Cumulative interest is ₹1.40 lakh; do not call the renewed ₹10.80 lakh a second original deposit.
Illustrative example 3: Separate deposits
Two separately identified court-directed deposits accrue verified interest ₹1.20 lakh and ₹0.90 lakh. Total interest population is ₹2.10 lakh. Apply each actual order and entitlement history before treating the amounts as one recipient’s interest.
Illustrative example 4: Partial ownership allocation
Assume an operative order allocates an established ₹3 lakh interest amount as ₹2 lakh to A and ₹1 lakh to B. The recipient schedule totals ₹3 lakh. This fictional allocation is taken from the assumed order, not a statutory division formula or a final TDS-rate calculation.
Illustrative example 5: Reconcile release and remaining funds
Verified funds are ₹15 lakh principal plus ₹1.50 lakh interest, total ₹16.50 lakh. An actual ₹10 lakh release leaves ₹6.50 lakh. Do not infer the principal/interest composition of that release solely from the arithmetic; read the order and bank allocation.
Illustrative example 6: Avoid duplicate interest imports
One ₹75,000 interest credit is imported from the original FDR statement and again from its renewal history, creating ₹1.50 lakh draft interest. Correct unique credit is ₹75,000. Neither duplicate records nor a renewal determine a second taxable receipt.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the court direction | Actual order and case reference. |
| 2 | Identify the FDR holder | Registrar General/depositor and account records. |
| 3 | Confirm the clarification’s facts | Court-directed deposit and ownership status. |
| 4 | Maintain the order chronology | Entitlement decisions and subsequent directions. |
| 5 | Separate principal and interest | Original deposit and cumulative bank credits. |
| 6 | Reconcile renewals and releases | Unique movements and remaining funds. |
| 7 | Identify the eventual recipient | Operative ownership order and recipient details. |
| 8 | Review section 194A separately | Applicable conditions, thresholds, rate and reporting. |
| 9 | Assess income recognition separately | Actual recipient taxability and period analysis. |
| 10 | Preserve the final evidence file | Orders, bank bridge and unresolved issues. |
Sixteen practitioner FAQs
1. Is every deposit made during litigation covered?
No. Establish the specific court-directed FDR facts.
2. Whose names does the circular address?
The Registrar General of the court or the depositor of the fund, on the court’s directions.
3. Is a ledger label sufficient?
No. Retain the actual order and deposit evidence.
4. What is the ownership issue relevant to the clarification?
Who is ultimately entitled to the funds pending the court’s decision.
5. Does a party’s demand decide ownership?
Not merely by asserting a claim.
6. What changes once the court decides ownership?
Apply section 194A to the recipient on the actual applicable conditions.
7. Can an unprocessed order be ignored?
No. Review actual operative decisions and their effect.
8. Does the circular permanently exempt interest?
No. Withholding deferral and substantive taxability are separate.
9. Does it prescribe a universal TDS rate?
No. Verify the applicable recipient and period-specific conditions.
10. Is the whole released FDR amount interest?
No. Reconcile principal and interest.
11. Can renewal hide accumulated interest?
It can obscure presentation; preserve the original principal and credit history.
12. Does an aggregate release identify its composition automatically?
No. Read the order and bank records.
13. Can two recipients be assigned one interest total casually?
No. Use the actual entitlement allocation.
14. Are the examples tax-assessment conclusions?
No. They illustrate deposit and recipient reconciliation under stated assumptions.
15. Why check duplicate imports?
The same interest can appear in both deposit and renewal records.
16. Which period is covered here?
FY 2025–26 / AY 2026–27 under the earlier-year framework.
Official sources
CBDT Circular 23/2015 Income Tax Department transition guidance