(INDIA) — The Supreme Court of India stayed the recovery of tax and interest demanded from State Bank of India for failing to deduct TDS on foreign Leave Travel Concession (LTC) reimbursements to employees.
The interim order, issued on or around February 19, 2026, halts enforcement pending further hearings, with notices issued to tax authorities.
State Bank of India secured the relief after the Karnataka High Court upheld the TDS demand in State Bank of India Vs DCIT, setting up a fresh round of litigation over how the Income Tax Act applies to overseas LTC payments.
At the centre of the dispute is Section 10(5) of the Income Tax Act and whether reimbursements for foreign travel under an employer’s LTC scheme fall within the exemption the provision provides.
The Karnataka High Court ruled that foreign LTC reimbursements do not qualify for exemption under Section 10(5), holding that the provision covers only travel within India.
That finding carried consequences for TDS compliance, because the case concerned demands raised against State Bank of India after tax authorities found that the bank had not deducted TDS on overseas LTC payments to employees.
A survey under Section 133A identified the non-deduction of TDS on these overseas LTC payments and triggered the proceedings that resulted in demands under Section 201(1) for tax and Section 201(1A) for interest.
State Bank of India challenged the demand by arguing it had made a bona fide mistake, relying on prior interim orders from the Madras High Court dated April 25, 2014, and from the Supreme Court dated August 28, 2023.
The Karnataka High Court rejected that claim of a bona fide mistake, despite the bank’s reliance on those interim orders.
State Bank of India also argued it could not deduct TDS while those courts’ stays prevented withdrawing the foreign LTC benefits.
The Karnataka High Court distinguished the obligation to deduct TDS from perquisite eligibility, and cited State Bank of India v. Assistant Commissioner of Income Tax (2023) 1 SCC 162.
That approach left the bank facing recovery of both tax and interest on the amounts the tax authorities said should have been subjected to TDS, until the Supreme Court of India stepped in with interim relief.
The Supreme Court’s order does not resolve the legal question, and no final Supreme Court judgment details are available yet; this remains an interim relief.
Even so, the stay changes the immediate position for State Bank of India by stopping recovery while the case remains pending and notices have been issued to the tax authorities.
The procedural trail cited in the litigation includes the Madras High Court writ W.P. No. 11991/2014, which was finally dismissed on June 24, 2022.
State Bank of India pointed to the earlier Madras High Court interim order dated April 25, 2014, and later developments in the Supreme Court as part of its argument that its position on foreign LTC reimbursements involved a bona fide mistake.
The Supreme Court order dated August 28, 2023, stayed the Madras High Court judgment, a step that State Bank of India used to support its case on the TDS demands even though the Karnataka High Court did not accept that reasoning.
The Karnataka High Court’s interpretation of Section 10(5) turned on the boundary it drew around the exemption, stating that the provision covers only travel within India, and therefore does not extend to foreign LTC reimbursements.
By linking that conclusion to the TDS demand, the High Court upheld the action taken after the Section 133A survey and the resulting demands under Section 201(1) and Section 201(1A).
The Supreme Court of India has now paused that enforcement, but only as an interim measure, leaving both the tax authorities and State Bank of India awaiting further hearings.
The case also foregrounds the High Court’s view that the duty to deduct TDS cannot be treated as dependent on disputes over whether an employee benefit should continue, because the court drew a line between TDS obligation and perquisite eligibility.
That distinction mattered in the bank’s argument that it could not deduct TDS while court stays prevented withdrawing the foreign LTC benefits, a contention the Karnataka High Court addressed by separating the withholding obligation from the benefit’s continuation.
In practical terms, the Supreme Court’s stay means the recovery of tax and interest demanded from State Bank of India remains on hold while the court considers the dispute arising from State Bank of India Vs DCIT and the High Court’s reading of Section 10(5).
The interim order also places focus on the earlier sequence of litigation across courts, from the Madras High Court interim order on April 25, 2014, to the dismissal of W.P. No. 11991/2014 on June 24, 2022, and the Supreme Court’s order on August 28, 2023, staying that judgment.
For tax authorities, the demands under Section 201(1) and Section 201(1A) flowed from the survey under Section 133A and the conclusion that TDS was not deducted on overseas LTC payments, an assessment the Karnataka High Court upheld.
For State Bank of India, the Supreme Court’s interim protection offers time while it continues to contest the consequences of the High Court ruling that foreign LTC reimbursements do not qualify for exemption under Section 10(5).
The matter also carries potential impact on other entities with similar foreign LTC arrangements, because the High Court decision treated the exemption as confined to travel within India, and the Supreme Court of India has not yet issued a final judgment that would provide definitive guidance.
Until that final judgment emerges, the case leaves practitioners focused on the High Court’s reasoning that the distinction between TDS obligation and perquisite eligibility is critical, and on how Section 10(5) is interpreted for reimbursements involving travel outside India.
For now, the Supreme Court’s stay keeps the immediate recovery action against State Bank of India in abeyance, even as the broader question of how Section 10(5) applies to foreign Leave Travel Concession reimbursements awaits a final decision.
Supreme Court Freezes TDS Notices on State Bank of India Under Section 10(5)
The Supreme Court of India has issued an interim stay on the recovery of tax demands against State Bank of India. The dispute centers on whether foreign Leave Travel Concession reimbursements are exempt under Section 10(5) of the Income Tax Act. While the Karnataka High Court ruled these benefits apply only to domestic travel, the Supreme Court has paused enforcement pending a more detailed review of the bank’s legal challenges.
