Circular No. 692-Income tax dated 15-11-1994

SECTION 193 – INTEREST ON SECURITIES

INSTRUCTIONS FOR DEDUCTION OF TAX AT SOURCE FROMINCOME FROM INTEREST ON SECURITIES

FINANCIAL YEAR 1994-95

1709. Instructions for deduction of tax at source from interest on securities – Rate of deduction from interest on securities during financial year 1994-95
1710. Reference is invited to the Board’s Circular No. 655, dated the 26th August, 1993, regarding deduction of income-tax at source from the payment of interest on securities for the financial year 1993-94.
1711. According to the provisions of section 193 of the Income-tax Act, 1961, the person responsible for paying 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 interest payable. For this purpose, credit to any suspense account or any other account (by whatever name called) shall be deemed to be a credit of such income to the account of the payee.
1712. For the financial year 1994-95, the applicable rates insofar as they relate to deduction of tax at source from the payment of interest on securities are given in Part II of the First Schedule to the Finance Act, 1994. Briefly stated, these are as follows :

(A)	In the case of a person other than a company—
	(1)   Where the person is resident in India, on income by way of interest payable on —
	(a)    any security of the Central or a State Government :	10%
	(b)    any debentures  or  other securities for money issued by or  on  behalf  of  any  local authority  or  a  corporation established  by  a Central, State or Provincial Act :	10%
	(c)    any debentures issued by a company where such debentures  are  listed  on  a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 and any rules made thereunder :	10%
	(2)   Where the person is not resident in India	income-tax  @  30%  of  the amount of income
		OR
		income-tax in respect of the income at the rates prescribed in Sub-paragraph I of paragraph A of Part III of First Scheduled of Finance Act, 1994 (Annexure I), if such income had been the total income, whichever is higher.
	(B)   In the case of a company—
	(a)    Where the company is a domestic company :	21.5%
	(b)    Where  the  company  is  not  a domestic company :	55%.

4. Surcharge : The amount of the tax deducted as per the rates given above shall be increased —

by a surcharge @15% of such income-tax in the case of a domestic company only.

5. It may be noted that,—

(a)   Tax will be deducted at source under section 193 at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier. For this purpose, credit to any suspense account or any other account, by whatever name called, shall be deemed to be a credit of such income to the account of the payee.

(b)   Tax will not be deducted at source from any interest payable to a resident individual on debentures issued by a company in which the public are substantially interested, being debentures listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, and, any rules made thereunder, if the interest is paid by the company by an account payee cheque and the amount of such interest or, as the case may be, the aggregate amount of such interest paid or likely to be paid during the financial year by the company to such individual does not exceed Rs. 2,500.

(c)   Tax will not be deducted at source under section 193 in the case of a resident individual who makes a declaration in Form No. 15F (vide Annexure II) as provided by section 197A, to the effect that tax on his estimated total income of the financial year 1994-95 will be nil. A copy of such declaration should be forwarded by the tax-deductor, on, or, before the seventh day of the month next following the month in which the declaration is received by him, to the Chief Commissioner/Commissioner of Income-tax concerned, as provided in rule 29C(5) of the Income-tax Rules, 1962;

(d)   No tax will be deducted at source or it will be deducted at a lower rate in the case of a person (including a company) where a certificate under section 197 is issued by the Assessing Officer on, or, after 1st April, 1994, specifying the rate of such deduction of tax at source. Where such exemption on abatement certificate has been issued before 1st April, 1994, it should be accepted and acted upon, if it is operative for the financial year ending 31st March, 1995.

(e)   No tax should be deducted from interest payable on securities/bonds/debentures which have been specifically exempted from the requirement of tax deduction at source under the proviso to section 193, or, which have been specified by the Central Government by notification in the Official Gazette under the proviso to section 193.

(f)   No tax should be deducted from any sum payable in respect of any security owned by a corporation established by, or, under a Central Act, which, under any law for the time being in force, is exempt from income-tax on its income. For instance, payments made to the Life Insurance Corporation, Unit Trust of India and the Small Industries Development Bank of India (SIDBI) are exempt from the requirement of tax deduction at source by virtue of their respective Acts.

(g)   The term ‘domestic company’ means an Indian company or any other company which, in respect of its income liable to tax under the Income-tax Act, 1961, has made the prescribed arrangements for the declaration and payment within India, of the dividends (including dividends on preference shares) payable out of such income.

(h)   As provided by section 288B of the Income-tax Act, fractions of one rupee contained in the amount of tax will have to be rounded off to the nearest rupee by ignoring amounts less than fifty paise, and, increasing amounts of fifty paise or more to one rupee. Hence, the amount of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provision of the Act.

6. The responsibilities, obligations, etc., under the Income-tax Act, of the person deducting tax at source, are as follows :—

(a)   According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 193 is required to pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962) the sum so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of deduction itself. In other cases, normally, the sum has to be paid within one week from the last day of the month in which the deduction is made. If a person fails to pay the tax, deducted by him, to the credit of the Central Government he shall be liable to action under the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid to the Government. Further, section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay by way of penalty a sum equal to the amount of tax which he failed to deduct at source. In this regard, attention is also invited to the provisions of section 276B which lays down that if a person fail to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years, and, with fine.

(b)   According to the provisions of section 203, every person deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein the amount so deducted and certain other particulars. The certificate has to be furnished in Form No. 16A (see Annexure III) within the prescribed period of one month and fourteen days to the person to whose account credit is given or to whom payment is made by any mode, as the case may be Form No. 16A can be issued by the tax deductors on their own stationery. If a person fails to furnish a certificate as required under section 203, he shall be liable to pay, by way of penalty under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c)   According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the tax deduction account number (TAN) in the challans, TDS certificates, returns, etc. Detailed instructions in this regard are available in the Board’s Circular No. 497 [F. No. 275/118/87-IT(B)], dated 9-10-1987. If a person fails to comply with provisions of section 203A, he shall be liable to pay, by way of penalty under section 272BB, a sum up to Rs. 5,000.

(d)   According to the provisions of section 206, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every company, the prescribed person in the case of every office of Government, the principal officer in the case of every local authority or public body or association, every private employer and every other person responsible for deducting tax at source under the various provisions of the Act shall prepare and deliver by the prescribed date the annual return of deduction of tax at source to the designated/concerned Assessing Officer. In the case of deduction of tax at source from interest on securities, the said annual return has to be prepared in Form No. 25 and delivered by the 30th June following the financial year to which it relates. If a person fails to furnish in due time the annual return, he shall be liable to pay, by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues. The maximum penalty will, however, not exceed the amount of tax deductible at source.

7. The State Governments/Union Territory administrations, the Reserve Bank of India, State Bank and other Banks, Financial Institutions, etc., are requested to bring the contents of this Circular to the notice of their concerned departments/officers, who are responsible for making payment of interest on securities, for necessary action and compliance.
8. These intructions are not exhaustive and are issued with a view to helping the persons responsible for deducting tax at source from payment of interest on securities. In the case of any doubt, reference should be made to the relevant provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962, and the Finance Act, 1994. If any assistance is required, the Assessing Officer or the Public Relations Officer of the Income-tax Department should be contacted.

Circular : No. 692, dated 15-11-1994.

ANNEXURE I

EXTRACT FROM THE FINANCE ACT, 1994, PART III OF THE FIRST SCHEDULE

Paragraph A, Sub-Paragraph I

In the case of every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-paragraph II of this Paragraph or any other paragraph of this Part applies, —

Rates of income-tax

(1)	where the total income does not	Nil;
	exceed Rs. 35,000
(2)	where the total income exceeds	20 per cent of the amount by which
	Rs. 35,000 but does not exceed	the total income exceeds Rs. 35,000;
	Rs. 60,000
(3)	where the total income exceeds	Rs. 5,000 plus 30 per cent of the
	Rs. 60,000 but does not exceed	amount by which the total income
	Rs. 1,20,000	exceeds Rs. 60,000;
(4)	where the total income exceeds	Rs. 23,000 plus 40 per cent of the
	Rs. 1,20,000	amount by which the total income exceeds Rs. 1,20,000

ANNEXURE II

FORM NO. 15F

[See rule 29C(1)]

Declaration under section 197A(1) of the Income-tax Act, 1961, to be made by an individual claiming receipt of “Interest on securities” without deduction of tax

I, ……………………………………………………………., son/daughter/wife of ………………………………………… resident of @……………………………………………………………………… do hereby declare :—

1. That the securities, particulars of which are given below, stand in my name and are beneficially owned by me, and the interest therefrom is not includible in the total income of any other person under sections 60 to 64 of the Income-tax Act, 1961 :

Descriptionof securities	Number ofsecurities	Dates ofsecurities	Amount ofsecurities	Date(s) on whichthe securities were acquired by the declarant

2. that my present occupation is……………………………………………………………………………………….,
3. that, the tax on my estimated total income, including the interest on securities referred to in paragraph 1 above, computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on…………………………………. relevant to the assessment year 19…………… 19……………. will benil.
4. *that I have not been assessed to income-tax at any time in the past but I fall within the jurisdiction of the Chief Commissioner or Commissioner of Income-tax…………………………..;

or

that I was last assessed to income-tax for the assessment year 19……………….19…………….. by the Assessing Officer…………………………..Circle/Ward/District and the permanent account number allotted to me is…………………………….;

5. that I am resident in India within the meaning of section 6 of the Income-tax Act, 1961.

……………………………………………..

Signature of the declarant

Verification

I,………………………………………………, do hereby declare that to the best of my knowledge and belief what is stated above is correct, complete and is truly stated.

Verified today, the………………………………day of…………………..19……………………….

……………………………………………..

Signature of the declarant

Place : …………………………

Notes :

1. @ Give complete postal address.
2. The declaration should be furnished in duplicate.
3. *Delete whichever is not applicable.
4. Before signing the verification, the declarant should satisfy himself that the information furnished in the declaration is true, correct and complete in all respects. Any person making a false statement in the declaration shall be liable to prosecution under section 277 of the Income-tax Act, 1961, and on conviction be punishable—

(i)   in a case where tax sought to be evaded exceeds one lakh rupees, with rigorous imprisonment which shall not be less than six months but which may extend to seven years and with fine;

(ii)   in any other case, with rigorous imprisonment which shall not be less than three months but which may extend to three years and with fine.

(FOR USE BY THE PERSON TO WHOM THE DECLARATION IS FURNISHED)

1. Name and address of the person responsible for paying the interest on securities mentioned in paragraph 1 of the declaration
2. Date on which the declaration was furnished by the declarant
3. Period for which interest is paid
4. Amount of interest
5. Date on which interest is paid

Forwarded to the Chief Commissioner or Commissioner of Income-tax………………………………….

Place : …………………….	…………………………………………………
Date : ……………………..	Signature of the person  responsible for paying theinterest on securities

ANNEXURE III

FORM NO. 16A

[See rule 31(1)(b)]

Certificate of deduction of tax at source under section 203of the Income-tax Act, 1961

For interest on securities; dividends, interest other than ‘interest on securities’; winnings from lottery or crossword puzzle; winnings from horse race; payments to contractors and sub-contractors; insurance commission; payments to non-resident sportsmen/sports associations; payments in respect of deposits under National Savings Scheme; payments on account of repurchase of units by Mutual Fund or Unit Trust of India; commission, remuneration or prize on sale of lottery tickets; other sums under section 195; income of foreign companies referred to in section 196A(2); income from units referred to in section 196B; income from foreign currency bonds or shares of an Indian company referred to in section 196C; income of Foreign Institutional Investors from securities referred to in section 196D;

Name and address of	TDS circle where	Name and address of the person to whom
the person deducting	annual return under	payment made or in whose account it is
tax	section 206 is to be	credited
	delivered
……………………………………………………..	……………………………………………………..	……………………………………………………..
……………………………………………………..	……………………………………………………..	……………………………………………………..
……………………………………………………..	……………………………………………………..	……………………………………………………..
……………………………………………………..	……………………………………………………..	……………………………………………………..
……………………………………………………..	……………………………………………………..	……………………………………………………..
……………………………………………………..	……………………………………………………..	……………………………………………………..

TAX DEDUCTION	NATURE OF	PAN/GIR NO. OF THE PAYEE
ACCOUNT NO. OF	PAYMENT
THE DEDUCTOR
PAN/GIR NO. OF		FOR THE PERIOD…………..19…………
THE DEDUCTOR		TO 19……………………

DETAILS OF PAYMENT, TAX DEDUCTION AND DEPOSIT OF TAX INTO CENTRAL GOVERNMENT ACCOUNT

Date of pay-	Amount	Amount of	Rate at	Date & Challan No. of	Name of
ment/credit	paid/	Income-	which	deposit of tax into	bank and
	credited	tax	deducted	Central Government	branch
	(Rs.)	deducted		Account	where tax
		(Rs.)			deposited

Certified that a sum of Rs. (in words)……………………………………………. has been deducted at source and paid to the credit of the Central Government as per details given above.

………………………………………………………….

	Signature of person responsible for deduction of tax
Place : ……………………..	Full Name ……………………………………..
Date : ……………………..	Designation ……………………………………..