Payment of Interest on Deposit

Interest Is Paid Strictly on the Agreed Terms

The rate of interest a company promises a depositor, and the frequency at which it is paid (commonly annually, though a Deposit Receipt may equally promise half-yearly or cumulative interest), are both fixed at the time the deposit is accepted and printed on the Deposit Receipt itself — Chapter 5 already noted that this rate can never exceed the ceiling the Reserve Bank of India prescribes for NBFCs to pay on their own public deposits. Once fixed, the company cannot unilaterally revise the rate, defer the payment date, or withhold interest for any reason short of a genuine default in the depositor's own instructions (for example, an incorrect bank account number the depositor has failed to correct) — a depositor is entitled to receive interest exactly as promised, on time, every time it falls due.

Tax Deducted at Source

Wherever the interest a company pays or credits to a depositor in a financial year exceeds the threshold prescribed under Section 194A of the Income-tax Act, 1961, the company must deduct tax at source (TDS) before remitting the balance, and must issue the depositor a TDS certificate (Form 16A) recording the tax deducted, so the depositor can claim credit for it while filing their own income-tax return. The Secretary's interest-payment letter should always state the gross interest, the TDS deducted (if any), and the net amount actually remitted, so the depositor's own records tally exactly with what the company has done.

Specimen Letter — Forwarding Interest Due on a Deposit

SAHYADRI ENGINEERING WORKS LIMITED

Registered Office: Shivaji Udyog Nagar, Kolhapur – 416008

CIN: U28900MH2012PLC145678

Date: 12th July

To,

Mrs. Kavita Joshi,

27, Rajarampuri,

Kolhapur – 416008

Dear Madam,

Sub: Payment of interest on your Fixed Deposit Receipt No. FD/2025/0088, for the year ended 11th July

We are pleased to enclose our cheque No. 118820, drawn on State Bank of India, Kolhapur Industrial Estate Branch, for Rs. 4,050, being the net amount of interest due to you on your Fixed Deposit Receipt No. FD/2025/0088 of Rs. 50,000 at 9% per annum for the year ended 11th July, after deducting tax at source of Rs. 450 under Section 194A of the Income-tax Act, 1961. Our TDS Certificate (Form 16A) for the amount deducted will follow separately, as required by law.

Your deposit continues on its original terms and will next fall due for interest on 11th July next year.

Thanking you,

Yours faithfully,

For Sahyadri Engineering Works Limited

(Prasad Joshi)

Company Secretary

Encl: Cheque No. 118820 for Rs. 4,050 …