Circular No. 486-Income Tax dated 1-6-1987

FINANCIAL YEAR 1987-88

1716. Instructions for deduction of tax at source from interest on securities during financial year 1987-88 at the rates specified in Part III of First Schedule to Finance Act, 1987
1717. I am directed to invite a reference to this Department’s Circular No. 460 [F.No. 275/68/86-IT(B)], dated 3-7-1986 on the above subject wherein you were requested to issue necessary instructions to all the Treasury Officers, etc., for making deduction of income-tax at source from the payment of “Interest on Government Securities” for the financial year 1986-87.
1718. There is no change in the basic rates of tax for the financial year 1987-88, insofar as they relate to deduction of tax at source from payment of “Interest on Government Securities”. I am enclosing a copy of the draft circular letter setting out the rates at which income-tax should be deducted from such payments after 31st March, 1987. You may please issue the circular on the basis of this draft to all Treasury Officers and Sub-Treasury Officers under your control individually, with a view to ensuring that the provisions of the Act are strictly adhered to by them.
1719. It may be mentioned that the Finance Act, 1987, has inserted a new section 203A, with effect from 1-6-1987. The new section reads as under :

“203A. (1) Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D and section 195, if he has not been allotted any tax deduction account number shall, within such time as may be prescribed, apply to the Income-tax Officer for the allotment of a tax deduction account number.

(2) Where a tax deduction account number has been allotted to a person, such person shall quote such number,—

(a)   in all challans for the payment of any sum in accordance with the provisions of section 200;

(b)   in all certificates issued in accordance with the provisions of section 203;

(c)   in all the returns delivered in accordance with the provisions of sections 206, 206A and 206B to any income-tax authority; and

(d)   in all other documents pertaining to such transactions as may be prescribed in the interests of revenue.”

It may be pointed out that if a person fails to comply with the provisions of section 203A, he shall on an order passed by Income-tax Officer, pay by way of penalty a sum which may be to the extent of Rs. 5,000, as per the provisions of section 272BB which will be inserted in the Act with effect from 1-6-1987.

4. The Finance Act has also substituted, with effect from 1-6-1987, section 206 with the following new section :

“206. The prescribed person in the case of every office of Government the Principal Office in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the foregoing provisions of this Chapter shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed.”

5. A separate circular will be issued to prescribe the time for filing an application for allotment of tax deduction account number under section 203A, to prescribe the income-tax authority to whom the returns, etc., under section 206 are to be submitted and to cover any other incidental matter, In the meantime, the persons deducting the tax in accordance with the provisions of section 193 may be advised to apply to the concerned Income-tax Officer immediately for the allotment of tax deduction account number.

Circular : No. 486 [F.No.275/41/87-IT (B)], dated 1-6-1987.

DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS

1. I am to invite your attention to this office letter regarding deduction of income-tax from interest on Government securities during the financial year 1986-87.
2. Income-tax is to be deducted during the financial year 1987-88, from the entire amount of interest on securities at the following rates, namely :—

					Rates of income-tax
I.	In the case of a person other than a company—
	(i)	where the person is resident in India onincome by way of interest payable on any security (excluding interest payable on a tax-free security)			10 per cent
	(ii)	where the person is not resident in India—
	(1)		In the case of a non-resident Indian—
	A.			on investment income and long- term capital gains	20 per cent
	B.			on income by way of interest payable on a tax-free security	15 per cent
	C.			on  the  whole  of  the  other income	income-tax at 30 per of  the amount of the income,
					or
					income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of the Paragraph A of Part III of the First Schedule to the Finance Act, 1987 [Annex I], if such income had been the total income, whichever is higher.
	(2 )		In the case of any other person—
	A.			on  the  whole  of  income(excluding interest payable on a tax-free security)	[As against 1C above]
	B.			on income by way of interest on a tax-free security	15 per cent
II.	In the case of 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
	(ii )	where the company is not a domestic company—
	A.			on interest  payable  on  a tax -free security	44 per cent
	B.			on interest on other securities	65 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 the 1st day of April, 1987, 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 of the Act.
4. In making payment or crediting interest on Government securities after the 1st April, 1987, 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. In this connection, the following points should be kept in view :

(1) Exemption or abatement certificates issued before the 1st April, 1987, 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 31st March, 1988.

(2) Where a certificate is issued by the Income-tax Officer on or after 1st April, 1987, authorising deduction of tax at a 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 payment of income-tax under sections 10 to 13A.

(4) No tax should be deducted from interest payable on 7-year National Savings Certificate (IV Issue), National Development Bonds, etc., which have been specifically exempted from the requirement of tax deduction at source under the proviso to section 193 or on the interest payable on such debentures/securities/bonds as have been specified by the Central Government by notification in the Official Gazette under the proviso to section 193.

(5) No tax should be deducted from any interest payable on any other security of the Central or State Government where the security is held by a resident individual and the holder makes a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that his estimated total income of the previous year in which such income is to be included in computing his total income will be less than the minimum liable to income-tax as provided in section 197A(1). A copy of declaration form prescribed under the provisions of section 197A is atAnnex II. A copy of such declaration should be forwarded by you on or before the seventh day of the month next following the month in which the declaration is furnished to you to the Commissioner of Income-tax concerned, as provided in rule 29C of the Income-tax Rules, 1962.

(6) 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. Payments made to Life Insurance Corporation and Unit Trust of India are exempt from the requirement of T.D.S. by their respective Acts.

(7 ) 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 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 provisions of the Act.

ANNEX I – EXTRACT FROM THE FINANCE ACT, 1987, SUB-PARAGRAPH I OF
PARAGRAPH A OF PART III OF THE FIRST SCHEDULE

Paragraph A

Sub-Paragraph I

In the case of every individual or Hindu undivided family or unregistered firm or other 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 exceed Rs. 18,000	Nil ;
(2 )	Where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	Where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)	Where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)	Where the total income exceeds Rs. 1,00,000	Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

ANNEX II – DECLARATION UNDER SECTION 197A

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 :

Description of securities	Number of securities	Dates of securities	Amount of securities	Date(s) on which the securities were acquired by the declarant

2. that my present occupation is…………………….;
3. that 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 be less than the minimum liable to income-tax;
4. *that I have not been assessed to income-tax at any time in the past but I fall within the jurisdiction of the Commissioner of Income-tax,………………….

or

that I was last assessed to income-tax for assessment year 19…..19…… by the Income-tax 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 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 Commissioner of Income-tax,……………

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