Circular No. 82-Income Tax dated 20-3-1972

1732. Instructions for deduction of tax at source from interest on securities during financial year 1972-73 at the rates specified in Part III of First Schedule to Finance Bill, 1972

I am directed to forward a copy of draft circular letter setting out the rates at which income-tax and surcharge should be deduct­ed from interest on Government securities on or after April 1, 1972. It is requested that a circular on the basis of this draft may be issued by you immediately to all Treasury Officers and Sub-Treasury Officers under your control, individually.

Circular : No. 82 [F. No. 275/9/72-ITJ], dated 20-3-1973.

DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS

1. I am to invite your attention to this Office Letter……regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1971-72.

2. According to the Finance Bill, 1972, income-tax is to be deducted from the entire amount of interest on securities at the following rates, namely :

3. The term “domestic company” for the present purposes means an Indian company, or any other company which, in respect of its income liable to income-tax under the Act 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 on or after April 1, 1972 you should, therefore, deduct income-tax at the rates specified above, except in the cases where an exemption or abatement certificate, granted by an In­come-tax Officer under sub-section (1) of section 197 is pro­duced. The following instructions should be followed in this connection :

(1) Exemption or abatement certificates issued before April 1, 1972 authorising deduction of tax at a particular rate expressed as a percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1973.

(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1972 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 income-tax under sections 10 to 13.

(4) No tax should be deducted from any interest payable on 4¼ per cent National Defence Bonds, 1972 or 6½ per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 where any such Bonds are held by a resident individual and in the case of the aforesaid Gold Bonds, where the holder thereof makes a declaration in writing before the person responsible for making the payment that the total nominal value of the 6½ per cent Gold Bonds, 1977 or, as the case may be, the 7 per cent Gold Bonds, 1980 held by him (including such Bonds, if any, held on his behalf by any other person) did not in either case exceed Rs. 10,000 at any time during the period to which the interest relates.

(5) No tax should be deducted from interest payable to a non-resident on 4¼ per cent National Defence Loans, 1968 and 4¾ per cent National Defence Loans, 1972 as the interest paid on these loans to non-residents is totally exempt from income-tax under Notification No. SO 3331, issued under section 10(4). In the case of residents receiving interest on these loans, deduction of tax has to be made at the prescribed rates, except when the recipient is an individual.

(6) No tax should be deducted from interest payable on National Savings Certificates (First Issue) including National Savings Certificates (First Issue) Bank Series or 7-year National Savings Certificates (Fourth Issue).

(7) 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 before you 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 the previous year in which the interest is due is not likely to exceed the maximum 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.

(8) No tax should be deducted from any sum payable by way of interest or dividends in respect of any securities or shares 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.

(9) Under section 288B, fractions of one rupee contained in the amount of tax (including advance tax and tax deducted at source) 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.

(10) In cases of doubt, the Income-tax Officer should be consult­ed before making the deduction from interest on Government secu­rities.