Tax Deduction at Source on income from Deep Discount Bonds
CIRCULAR NO. 4/2004, DATED 13-5-2004
The tax-treatment of income from Deep Discount Bonds has been explained in the Board’s Circular No. 2/2002, dated 15-2-2002. Subsequently, the Board have received various requests for a clarification regarding tax deduction at source under section 193 of the Income-tax Act from interest on Deep Discount Bonds. Difficulties could also be faced by the taxpayers in view of section 199 of the Income-tax Act, which provides that credit for tax deduction at source shall be allowed only in the year in which the corresponding income is declared.
It is hereby clarified that tax is required to be deducted at source under section 193 or section 195, as the case may be, only at the time of redemption of such bonds, irrespective of whether the income from the bonds has been declared by the bond-holder on accrual basis from year to year or is declared only in the year of redemption.
It is further clarified that a person, who has declared the income from a Deep Discount Bond on annual accrual basis during the term of the bond, will be entitled to make an application under section 197 of the Income-tax Act, requesting the Assessing Officer to issue a certificate for no deduction of tax or deduction at a lower rate. In such a case, the assessee should furnish, along with the prescribed Form No. 13, details of the income offered for tax by him from year to year. In case the assessee is not the original subscriber, and has acquired the bonds from some other person, he shall furnish the relevant particulars including the name, address and PAN, of such other person. If the Assessing Officer is satisfied that the applicant assessee has declared his income from the bonds from year to year on accrual basis during the period the bond was held by him, he shall issue a certificate allowing the tax deduction at source at such reduced rate as is justified by the total income of the applicant in the year of redemption.
Similarly, an assessee being a resident individual, who is the original subscriber of a Deep Discount Bond, may furnish a declaration in Form No. 15H in accordance with section 197A, if he has been declaring income on the bond from year to year on accrual basis, and no tax is payable on his total income, including the interest.
Accruing during that year, in the year of redemption. However, such a declaration cannot be filed by an individual, other than a senior citizen availing tax rebate under section 88 B of the Income-tax Act, if the amount of accumulated interest, being paid on redemption, exceeds the maximum amount not chargeable to tax in his case.