TDS on Interest on Securities: The person responsible for paying to a resident any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier deduct income-tax at the rates in force on the amount of the interest payable.
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Topics covered in this article
TDS ON INTEREST ON SECURITIES [Sec. 193]
Credit of any income by way of interest on securities to any account, whether called “Interest payable account” or “Suspense account” or by any other name in the books of account of the person liable to pay such income, is, for the purposes of Section 193, deemed to be credit of such income to the payee and attracts applicability of the provisions of Section 193.
Who is responsible to deduct tax
Any person responsible for payment of interest on securities (other than interest on Government securities and certain specified securities) to any resident person.
Note: In the following cases tax is not required to be deducted:
- Interest payable to a resident-individual or a resident HUF on debentures is not subject to TDS provided following conditions are satisfied –
- Such debentures are issued by a company in which the public are substantially interested;
- Such debentures may be listed or unlisted
- The interest is paid by the company by an account payee cheque; and
- The amount of such interest payable during the financial year to such individual does not exceed ₹5,000.
- Any interest payable on any security of the Central or State Government. (However, tax is required to be deducted on interest payable on 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018, if amount of interest in a financial year exceeds ₹10,000).
- Any interest payable on any security issued by a company, where such security in dematerialised form and is listed on a recognised stock exchange.
- Any interest payable on securities beneficially held by Life Insurance Corporation of India or General Insurance Corporation of India or any of the 4 companies formed by virtue of the scheme framed u/s 16(1) of the General Insurance Business (Nationalisation) Act, 1972 or any other insurer.
- Any interest payable to Regimental Fund or non-Public Fund established by Armed Force [income of whose is exempt u/s 10(23AA).
When tax shall be deducted
At the time of payment or crediting the payee, whichever is earlier.
Taxpoint: Where any amount is credited to any account (for e.g. “Interest payable account” or “Suspense account”) instead of Payee account, such crediting shall be deemed to be credit of such income to the account of the payee.
Rate of TDS
The rate of TDS on Interest on securities is 10%. No health and education cess shall be added to the rate. The rate of TDS shall be 20% if PAN is not quoted by the payee.
TDS on Interest on Securities under Sec 193 is 10% (No surcharge, health and education cess) [From 14-05-2020 to 31-03-2021: 7.5%]
TDS can be made at the time of payment or at the time of credit to the account of the payee or transfer to interest payable amount or suspense account, whichever comes earlier. The identity of the person in whose hand it is includible have to be identified. Case law : [IDBI v. ITO (2006) 10 SOT 497/104 TTD 230 (Mum.)]
Non-applicability of TDS under section 193
No tax deduction is to be made from any interest payable:
(i) on 4 1⁄4% National Defence Bonds 1972, where the bonds are held by an individual not being a non-resident;
(ii) on 4 1⁄4% National Defence Loan, 1968 or 4 3⁄4% National Defence Loan, 1972, where the interest is payable to an individual;
(iii) on National Development Bonds;
(iv) on 7-year National Savings Certificates (IV Issue);
(v) on debentures issued by any institution or authority or any public sector company or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as notified by the Central Government;
(vi) on 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980, where the bonds are held by an individual (other than a non-resident), provided that the holders of the bonds make a written declaration that the total nominal value of the bonds held by him or on his behalf did not in either case exceed ₹10,000 at any time during the period to which the interest relates;
(vii) on any security of the Central Government or a State Government
Note – It may be noted that tax has to be deducted at source in respect of interest payable on 8% Savings (Taxable) Bonds, 2003, or 7.75% Savings (Taxable) Bonds, 2018, only if such interest payable exceeds ₹10,000 during the financial year.
(viii) on any debentures (whether listed or not listed on a recognized stock exchange) issued by the company in which the public are substantially interested to a resident individual or HUF. However,
(a) the interest should be paid by the company by an account payee cheque;
(b) the amount of such interest or the aggregate thereof paid or likely to be paid during the financial year by the company to such resident individual or HUF should not exceed ₹5,000.
(ix) on securities to LIC, GIC, subsidiaries of GIC or any other insurer, provided –
- (a) the securities are owned by them or
- (b) they have full beneficial interest in such securities.
(x) on any security issued by a company, where such security is in dematerialised form and is listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 and the rules made thereunder.
Exemption or relaxation from the provision
When the recipient applies to the Assessing Officer in Form 13 and gets a certificate authorizing the payer to deduct tax at lower rate or deduct no tax; [Refer sec.197]
When a declaration in Form 15G (in duplicate) is furnished by the assessee to the payer [Refer sec.197A]