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No withholding tax will be deducted if the banks have only made a provision for interest on fixed deposits and not actually paid to the applicant, the Ministry of Finance said.

Until now, the tax should be deducted by bankseven except that provisioning has been made for the payment of interest.

However, this was creating problems for banks using Core Branch Banking Solutions (CBS), which allows customers to access their accounts from any branch.

The Indian Banks' Association in a representation of the Tax Ministry had said that theIncome for banks using the software CBS, the interest payable on fixed deposits are typically calculated on a daily or monthly basis, but is stationed in account of provisions for monitoring only.

The interest is actually credited to the account of the depositor, either at the end of the year or at regular intervals or at maturity of deposits.

The issue was discussed by the Central Board of direct taxes to plug this gap.

According to an official of the Ministry of Finance, CBDT has clarified that no credit is given to applicants while calculating interest on fixed deposits on a daily and monthly basis in the CBS software used by banks, the tax should not be deducted at source on such interest provisioning.

"In such cases, the tax deducted at source from interest accrued, the council said, according to sources. Income tax is charged at a rate of 10 per cent on interest income of over Rs 10,000 per year.

No withholding tax will be deducted if the banks have only made a provision for interest on fixed deposits and not actually paid to the applicant, the Ministry of Finance said.

Until now, the tax should be deducted by bankseven except that provisioning has been made for the payment of interest.

However, this was creating problems for banks using Core Branch Banking Solutions (CBS), which allows customers to access their accounts from any branch.

The Indian Banks' Association in a representation of the Tax Ministry had said that theIncome for banks using the software CBS, the interest payable on fixed deposits are typically calculated on a daily or monthly basis, but is stationed in account of provisions for monitoring only.

The interest is actually credited to the account of the depositor, either at the end of the year or at regular intervals or at maturity of deposits.

The issue was discussed by the Central Board of direct taxes to plug this gap.

According to an official of the Ministry of Finance, CBDT has clarified that no credit is given to applicants while calculating interest on fixed deposits on a daily and monthly basis in the CBS software used by banks, the tax should not be deducted at source on such interest provisioning.

"In such cases, the tax deducted at source from interest accrued, the council said, according to sources. Income tax is charged at a rate of 10 per cent on interest income of over Rs 10,000 per year.