There are some issues under these sections which need discussion; an effort has been made on my part to cover some of them in the form of this article. Firstly, whether discount portion of certificate of deposits /commercial papers etc is covered under these sections and whether TDS is required to be made on that component. We have circular No. 647 dated 22nd March 1993 which says that the difference between the issue price and the face value of the commercial paper and the certificate of deposits is to be treated as ‘Discount Allowed’ and not as interest paid. [Though it has been defined as transfer in case of bonds and same has been taxed as Capital Gains W.e.f. 01.04.2006]. Since discussion is specifically with reference to TDS. Though this circular lay principal in respect of CD and CP, The same principal shall in respect of Bonds as well. Whether TDS has to be made on all mode of interest if it is paid under any act as compliance. The answer is in Circular No. 526 dated 5th December 1988. Which says that interest payment under Land Acquisition act is covered by the provisions of Section 194A and hence Tax has to be deducted at source under this section from the interest payment made to the public under Land Acquisition Act. One more Circular is important in this respect which says that so far as educational institutions whose income is exempt under section 10(22) [Now Section 10(23C)] is concerned provisions of Section 194A will not apply and no Tax need to be deucted at source [Letter No. 12/113/68 dated 28th October 1968]. The Time for making the payment of The tax Deduction at source is governed by Section 200 read with rule 30 and would reckon from the date of credit of interest made constructively to the account of the payee which would ordinarily be with in one week from the last day on the month. Where however interest is credited by an assessee carrying on business or profession, as on the date up to which the account thereof are made, the amount of TDS would be payable with in Two months of the expiry of the month in which accounts of the assessee are made [Circular No. 288, dated 22nd December 1980] We have on circular which discuss the applicability of TDS on cases where interest is being accumulated either quarterly/half yearly. This says that in respect of cumulative deposits/debentures/bonds, tax is required to be deducted at source at every time the interest is credited in the account books of the payer and is not to be postponed till the maturity of the deposits/ debentures/bonds. The tax so deducted is also required to be deposited in the account of the central government with in the prescribed time. [Circular No. 643 22nd January 1993].
Where the government securities are registered in the name of a banking company tax will be deducted at source from the interest at the rate in force applicable to the banking company without regard to the status of the beneficial owners of the securities. [Circular No. 2P dated 16th May 1966]. One more circular is important this is related with relief from applicability of TDS provisions. In the case of Provident Funds whose income is exempt under section 10(25) (ii) [i.e. Recognized Provident Funds] the income by way of interest on securities Central and State Government may be paid to such P.F. without deduction of Income Tax at Source [Circular 741 dated 18.04.1996]