Instructions for deduction of tax at source from interest on securities during financial year 1985-86 at the rates specified in Part III of First Schedule to Finance Act, 1985
1. I am directed to invite a reference to the Board’s Circular No. 393 [F. No. 275/14/84-IT(B)], dated 5-9-1984, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from the payments of “Interest on Government securities” as prescribed in the Finance Act, 1983, as modified by the Finance Act, 1984.
2. A few changes in the rates of tax at which deduction has to be made from the payments of interest on Government securities during the financial year 1985-86 have been made in the Finance Act, 1985. I am accordingly, enclosing a copy of the draft circular letter setting out the rates at which income-tax and surcharge should be deducted from such payments after March 31, 1985. You may please issue a 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.
Circular: No. 427 [F. No. 275/25/85-IT(B)], dated 31-7-1985.
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 1984-85.
2. According to the Finance Act, 1985, except in the case of interest on securities payable to Life Insurance Corporation of India which is exempt from deduction of income-tax, income-tax is to be deducted during the financial year 1985-86, from the entire amount of interest on securities at the following rates, namely :—
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Rate of
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Rate of
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Income-tax
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Surcharge
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I.
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In the case of a person other than a company :
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(i)
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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)
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10 per cent
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Nil
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(ii)
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Where the person is not resident in India—
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(1)
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In the case of a non-resident Indian—
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(A)
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on investment income and long- term capital gains
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20 per cent
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Nil
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(B)
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on income by way of interest payable on a tax-free security
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15 per cent
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Nil
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(C)
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on the whole of the other income
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Income-tax at 30 per cent of the amount of the income
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or
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income-tax in respect of the income at the rates prescribed in Sub-paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1985 (Annex. I), if such income had been the total income, whichever is higher.
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(2)
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In the case of any other person,—
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(A)
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on the whole of income (excluding interest payable on a tax-free security)
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[As against 1(c) above]
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(B)
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on income by way of interest payable on a tax-free security
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15 per cent
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Nil
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II.
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In the case of a company :
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(i)
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Where the company is a domestic company on interest on securities (excluding interest payable on a tax-free security)
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21.5 per cent
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1.075 per cent
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(ii)
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Where the company is not a domestic company—
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(A)
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on interest payable on a tax-free security
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44 per cent
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2.2 per cent
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(B)
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on interest on other securities
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65 per cent
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3.25 per cent.
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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, 1985, 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, 1985, 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 April 1, 1985, 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, 1986.
(2) Where a certificate is issued by the Income-tax Officer on or after 1st April, 1985, 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).
(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 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 at Annex 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 by you to the Commissioner of Income-tax concerned, as provided in rule 29C of the Income-tax Rules, 1962.
(7) 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.
(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 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, 1985 – 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
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(1)
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Where the total income does not exceed Rs. 18,000
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Nil ;
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(2)
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Where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000
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25 per cent of the amount by which the total income exceeds Rs. 18,000;
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(3)
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Where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000
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Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
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(4)
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Where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000
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Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
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(5)
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Where the total income exceeds Rs. 1,00,000
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Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.
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ANNEX II – DECLARATION UNDER SECTION 197A
FORM NO. 15F
[See rule 29C(1)]
Declaration under section 197(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:
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Description of securities
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Number of securities
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Dates of securities
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Amount of securities
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Date(s) on which the securities were acquired by the declarant
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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.
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………………………………………………..
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Signature of the declarant
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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…….
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Place : …………….
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…………………………………………
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Signature of declarant
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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 the 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…………….
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…………………………………………………………………..
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Place …………………..
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Signature of the person responsible
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Date ………………….
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for paying interest on securities
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