Applicability of Section 193: TDS on Interest on Securities
Tax deduction at source (TDS) places the onus of deducting tax on the person making the payment. Hence, under Section 193 of the Income-tax Act 1961, any person paying interest on securities* to a resident must deduct TDS. The provisions of this section do not apply to the payment of interest on securities to a non-resident.
*Interest on Securities as defined under Section 2(28B) of the Income-Tax Act, 1961 means
- interest on the securities of the Central or State Government
- interest on debentures or other securities for money issued on behalf of a local authority/ company/corporation established by a Central, State or Provincial Act.
Rate of TDS
The TDS rate is 10% if the payee furnishes the Permanent Account Number (PAN). In case the payee fails to furnish the PAN, then the deduction will be at the maximum marginal rate.
Who is responsible for deducting?
Any person responsible for paying interest on securities to a resident must deduct tax under this section.
When should the tax be deducted?
The tax must be deducted:
- At the time of credit of income to the account of the payee or
- At the time of payment, whether in cash/ cheque/ draft/ any mode, whichever is earlier.
While other Sections of TDS have exemption limits, for Section 193, no exemption limits are specified, except in the following:
- If interest is paid on debentures to an individual or HUF, issued by a public limited company and paid by an account payee cheque, then the exemption is ₹ 5000
- In the case of 8% saving (taxable) bonds, the exemption is ₹ 10,000
So the tax must be deducted in these two cases only if the payout exceeds the threshold limit. So say, Company Y(Public Limited Company) pays ₹3000 to Mr A as interest on debenture; then Company Y need not deduct tax on the same.
Interest payments that are excluded:
No TDS is necessary in case of interest payable on the following bonds/securities.
- 7-year National Savings Certificate (IV issue)
- National Development bonds
- 4.25% National Defence Loan, 1968 or 4.75% National Defence Loan,1972, held by an individual
- 4.25% National Defence Bonds 1972, held by a resident individual
- 6.5% Gold Bonds,1977 or 7% Gold Bonds, 1980, held by a resident individual wherein the nominal value of the bonds does not exceed ₹10,000 at any time during the period to which the interest relates
- Debentures issued by central government notified institution/authority/public sector company/co-operative society
- any interest payable on any security of the Central Government or a State Government
- Securities owned by Life Insurance Corporation or in which it has a full beneficial interest.
- Securities owned by General Insurance Corporation or in which it has a full beneficial interest.
- Securities owned by any other insurer or in which it has a full beneficial interest.
Amendment in Budget 2023
Finance bill has omitted the below clause from the exclusion list:
“no tax shall be deducted on interest payable 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.”
This amendment is effective from 01st April 2023 and now 10% TDS will be deducted on listed NCD as well.
Deposit of Tax deducted
The tax deducted must be deposited by the deductor within 7 days of the next month in which the tax is deducted. So say TDS is deducted on 20th June, and the tax must be deposited by 7th July. The only exception is the tax deducted in March, which must be deposited by 30th April.
Consequences of Default
If the deductor fails to deduct the tax, they will be charged a 1% interest for every month or part of a month overdue. This interest will be calculated from the date the tax was deductible until the date it is deducted.
In the above example, if the income ₹10,000 was credited on the 20th of June and paid on the 25th of June. Tax amount ₹ 1000 must be deducted on 20th June. If the deductor deducts on the 5th of July, then the interest payment is ₹ 10.
If the deductor, after deducting the tax fails to deposit the tax, then a simple interest of 1.5% for every month or part of the month will be levied from the date on which the tax is deducted to the date of the actual deposit.
TDS Certificate Issuance under Section 193
The deductor must adhere to the timelines for the issuance of the TDS certificate after complying with all the provisions for deduction and deposit of tax.
All Non-Government deductors need to furnish Form 16A to the deductee quarterly within the specified dates:
|April – June||15th August|
|July- September||15th November|
|October – December||15th February|
|January – March||15th June|
TDS Return Filing
The deductor also needs to file a quarterly return in Form 26Q within the following due dates:
|April – June||31st July|
|July- September||31st October|
|October – December||31st January|
|January – March||31st May|
Frequently Asked Questions (FAQ)
Is there any additional cess added to the base rate?
No. The deduction is a flat rate of 10%, and no educational cess, surcharge or SHEC is added to the rate.
Is any deductee exempt from the deduction?
Suppose a deductee is an individual who furnishes a declaration in writing in duplicate in Form 15G/15H to the deductor that his/her total income does not exceed the taxable limits, and no tax is payable. In that case, the deductor need not deduct TDS on such payments.
TDS at a higher rate was deducted as my PAN details were incorrect. How can this be rectified?
In case of incorrect PAN details, TDS at a higher rate is deducted. You can get this rectified by providing the correct details to the deductor.
The interest payable has been credited to the “Suspense Account” by the deductor. Do the provisions of Section 193 apply?
Yes. The income by way of interest on securities credited to any account, irrespective of its nomenclature, will amount to crediting of interest income; hence, the provisions of this section will apply.