FINANCIAL YEAR 1981-82
1723. Instructions for deduction of tax at source from interest on securities during financial year 1981-82 at the rates specified in Part III of First Schedule to Finance Bill, 1981
1. I am directed to invite a reference to this Department’s Circular No. 275, dated 16-7-1980 and to enclose a copy of the draft circular letter setting out the rates at which income-tax and surcharge should be deducted from interest on Government securities after March 31, 1981, as prescribed in the Finance Bill, 1981.
2. A circular on the basis of this draft may please be issued immediately to all Treasury Officers and Sub-Treasury Officers under your control individually.
Circular : No. 299 [F. No. 275/10/81/-IT(B)], dated 24-4-1981.
DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS
1. I am to invite your attention to this Office Letter No. …… regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1980-81.
2. According to the Finance Bill, 1981, except in the case of interest on securities payable to the Life Insurance Corporation of India which is exempt from deduction of income-tax, income-tax is to be deducted during the financial year 1981-82 from the entire amount of interest on securities at the following rates, namely :
|
Rate of
|
Rate of
|
|||||
|
Income-tax
|
Surcharge
|
|||||
|
I.
|
In the case of a person other than a company :
|
|||||
|
(i)
|
where the person is resident in India on income by way of interest payable on any security (excluding interest payable on a tax-free security)
|
10 per cent
|
Nil
|
|||
|
(ii)
|
where the person is not resident in India—
|
|||||
|
(a)
|
on interest on securities(excluding interest payable a on tax-free security)
|
income-tax at 30 per cent and surcharge at 3 per cent of the amount of the interest,
|
||||
|
or
|
||||||
|
income-tax and surcharge on income-tax in respect of the interest at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1981, if such interest income had been the total income, whichever is higher
|
||||||
|
(b)
|
on interest payable on a tax-free security
|
15 per cent
|
1.5 per cent
|
|||
|
II.
|
In the case of a company—
|
|||||
|
(i)
|
where the company is a domestic company on interest on securities (excluding interest payable on a tax-free security)
|
21.5 per cent
|
0.5 per cent
|
|||
|
(ii)
|
where the company is not a domestic company—
|
|||||
|
(a)
|
on interest payable on a tax-free security
|
|||||
|
44 per cent
|
1.1 per cent
|
|||||
|
(b)
|
on interest on other securities
|
70 per cent
|
1.75 per cent
|
|||
3. The term “domestic company” means an Indian company or any other company which, in respect of its income liable to income-tax under the Act, for the assessment year commencing on April 1, 1981 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 in accordance with the provisions of section 194.
4. In making payment or crediting interest on Government securities after April 1, 1981, you are requested to deduct income-tax at the rates specified above, except in cases where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. The following should be followed in this connection :
(1) Exemption or abatement certificates issued before April 1, 1981 authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1982.
(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1981, authorising deduction of tax at specified rate in respect of any person, income-tax should be deducted at the rates specified therein.
(3) No tax should be deducted in cases in which, from a certificate issued by the Income-tax Officer or otherwise, you are satisfied that the payee is a person exempt from income-tax under sections 10 to 13A.
(4) No tax should be deducted from interest payable on 7-year National Savings Certificate (IV Issue).
(5) No tax should be deducted from any interest payable on National Development Bonds.
(6) No tax should be deducted from any interest payable on any other security on the Central or State Government where the security is held by a resident individual, and the holder makes a declaration in writing before the person responsible for making the payment to the effect that—
(a) he has not previously been assessed under the 1961 Act or under the 1922 Act ;
(b) his total income of previous year in which the interest is due is not likely to exceed the minimum amount not chargeable to income-tax ; and
(c) the total nominal value of the securities held by him (including such securities, if any, as are held on his behalf by any other person) did not exceed Rs. 2,500 at any time during the said previous year.
(7) No tax should be deducted from any sum payable in respect of any securities 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.
(8) Under section 288B, 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 50 paise and increasing amounts of 50 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 provisions of the Act.
