TDS ON INTEREST ON SECURITIES UNDER SECTION 193 OF INCOME TAX ACT

TDS U/S 193: INTEREST ON SECURITIES & ITS APPLICABILITY

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 193 of Income Tax Act?

Section 193 of Income Tax Act, 1961 specifies the TDS on interest on securities means any interest on security (issued by government, whether state or central) and interest on debentures/ securities (issued by a company or a corporation or local authority).

3. When is TDS to be deducted under Section 193?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deduct TDS under section 193?

Any person who is giving interest income on securities to a resident is required to deduct TDS before making the interest payment to the resident.

NOTE:

This section i.e. Interest on securities is not applicable to making such payments to non-resident.

5. Rate of TDS under Section 193?

The TDS rate under Section is 10%, however in case the payee is unable to furnish his/ her PAN then the TDS will be deducted at Maximum Margnial Rate (MMR).

Example: -

Suppose Mr Rahul has purchased debentures of Rs. 10,00,000 of reliance ltd which is offering 8% interest rate, then his annual interest on securities will be 80,000 (8% of 10,00,000), so reliance ltd will have to deduct TDS @ 10% i.e. Rs. 8,000 before making payment to Mr. Rahul.

6. Exemption under Section 193?

No TDS if interest is paid: -

• For Debentures issued by a public company to Individual/ HUF, if interest does not exceed Rs. 5,000 during the PY and the same is paid by a/c payee cheque.
• To LIC, GIC or other insurers.
• To Individuals on 4.25% National Defence Fund, 1972 or 4.25% National Defence Loans, 1968 or 4.75% National Defence Loan, 1972.
• National Development Bonds.
• 7 Year National Saving Certificate (IV- Issue).
• Section 54EC CG Bonds issued by Power Finance Corp. Ltd. Or Railway Finance Corp. Ltd.
• Individuals holding 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 provided that the nominal value of bond does not exceed Rs. 10,000.
• On government securities (Exception- interest on 8% savings (Taxable) Bonds, 2003 or 7.75% savings (Taxable) Bonds, 2018, if interest is more than Rs. 10,000 during the PY then TDS is applicable).
• To a business trust by a special purpose vehicle on any security.

NOTE: -

Special purpose vehicle (SPV) is a separate legal entity created by an organization. The SPV is a distinct company which has its own Assets and Liabilities, as well as its own legal status. Usually, they are created for specific objective, often to isolate risk.

7. Time limit for deposit of TDS under Section 193?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 193?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 193?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.