1) Who is responsible to deduct tax under Section 193 of Income Tax Act, 1961?
Any person responsible for paying any interest on securities to a resident is required to deduct tax at source.
2) When to Deduct TDS under Section 193?
Tax shall be deducted under this section, either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier.
For this purpose, credit to “Interest payable account” or “Suspense account” or any other name shall be deemed to be a credit of such income to the account of the payee.
For this purpose, “payment” can be in cash or by issue of a cheque or draft or by any other mode.
3) Meaning of interest on securities
Section 2(28B) defines interest on securities. It means:
a) interest on any security of Central Government or State Government
b) interest on debentures or
c) interest on other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.
4) Rate of TDS under Section 193
As per section 193 read with Part II of First Schedule of Finance Act, tax is to be deducted @ 10% (7.5% w.e.f. 14.05.2020 to 31.03.2021) from the amount of interest.
a) No surcharge, plus Health & Education Cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
b) As per section 206AA(1), if the permanent account number is not provided by the deductee, the tax shall be deducted at the higher of the following rates, namely:—
i. at the rates specified in the relevant provisions of the Act
ii. at the rate or rates in force
iii. at the rate of 20%.
c) Further, as per section 206AA(4), no certificate under section 197 for deduction of tax at Nil rate or lower rate shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.
d) Similarly, declaration under 15G/15H shall not be valid if it does not contain the permanent account number of the declarant. In case any declaration becomes invalid, the deductor shall deduct the tax @ 20%.
5) When No Tax shall be deducted U/s 193?
In the following cases tax is not to be deducted under section 193:
A. Interest payable to insurance companies, etc.:
Any interest payable to:—
i. Life Insurance Corporation of India;
ii. General Insurance Corporation of India or any of four companies formed under it;
iii. Any other insurer, in respect of any securities owned by them, or in which they have full beneficial interest.
B. Interest paid or credited by widely held company not exceeding ₹ 5,000:
No tax is to be deducted at source if the following conditions are satisfied:
i. if debentures are issued by a widely held company;
ii. such debentures may or may not be listed on a stock exchange in India;
iii. interest is paid/payable to an individual or HUF who is resident in India; and
iv. interest is paid by account payee cheque; and
v. the amount or the aggregate of the amounts of such interest paid or payable during the financial year does not exceed ₹ 5,000.
c. Any interest payable on any security issued by a company, where such security is in dematerialized form and is listed on a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 and the rules made thereunder.
D. Interest paid or credited on 8% saving (Taxable) Bonds 2003 issued by the Central Government provided the interest on such bonds does not exceed ₹ 10,000.
E. Where a self-declaration under Form No. 15G/15H is furnished by a particular person [Section 197A (1A), (1B) and (1C)]:
A person, other than a company or firm may furnish a declaration in writing in duplicate in new Form No. 15G to the payer to the effect that there is no tax payable on his Total Income. In this case, the payer shall not deduct any tax at source.
F. Any payment made to New Pension System Trust [Section 197A (1E)]:
No deduction of tax shall be made from any payment to any person for, or on behalf of, the New Pension System Trust referred to in section 10(44).
G. No deduction of tax from specified payment to notified institutions, association or body, etc. [Section 197A (1F)]:
No deduction of tax shall be made from such specified payment to such institution, association or body or class of institutions, associations or bodies as may be notified by the Central Government in the Official Gazette, in this behalf. No tax shall be deducted at source from the payments of the nature specified under section 10(23DA) received by any securitization trust.
H. Certain entities required to file return under section 139(4A) or 139(4C) [Rule 28AB]:
As per rule 28AB certain entities who are required to file their return of income under section 139(4A) or 139(4C) may apply under Form No. 13 for no deduction of tax at source provided certain conditions are satisfied.
I. Certain entities whose income is unconditionally exempt under section 10:
In case of certain entities whose income is unconditionally exempt under section 10 and who are statutorily not required to file return under section 139 there will be no requirement for TDS since their income is in any way exempt.
Extract of Section 193 – TDS from Interest on Securities
193. The person responsible for paying to a resident any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax at the rates in force on the amount of the interest payable :
Provided that no tax shall be deducted from—
(i) any interest payable on 4¼ per cent National Defence Bonds, 1972, where the bonds are held by an individual, not being a non-resident; or
(ia) any interest payable to an individual on 4¼ per cent National Defence Loan, 1968, or 4¾ per cent National Defence Loan, 1972; or
(ib) any interest payable on National Development Bonds; or
(iia) any interest payable on 7-Year National Savings Certificates (IV Issue); or
(iib) any interest payable on such debentures, issued by any institution or authority, or any public sector company, or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as the Central Government may, by notification in the Official Gazette, specify in this behalf;
(iii) any interest payable on 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, where the Bonds are held by an individual not being a non-resident, and the holder thereof makes a declaration in writing before the person responsible for paying the interest 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 ten thousand rupees at any time during the period to which the interest relates;
(iv) any interest payable on any security of the Central Government or a State Government:
Provided that nothing contained in this clause shall apply to the interest exceeding rupees ten thousand payable on 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year;
(v) any interest payable to an individual or a Hindu undivided family, who is resident in India, on any debenture issued by a company in which the public are substantially interested, if—
(a) the amount of interest or, as the case may be, the aggregate amount of such interest paid or likely to be paid on such debenture during the financial year by the company to such individual or Hindu undivided family does not exceed five thousand rupees; and
(b) such interest is paid by the company by an account payee cheque;
(vi) any interest payable to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any securities owned by it or in which it has full beneficial interest; or
(vii) any interest payable to the General Insurance Corporation of India (hereafter in this clause referred to as the Corporation) or to any of the four companies (hereafter in this clause referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any securities owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest; or
(viii) any interest payable to any other insurer in respect of any securities owned by it or in which it has full beneficial interest;
(ix) any interest payable on any security issued by a company, where such security is in dematerialised form and is listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the rules made thereunder.
Explanation—For the purposes of this section, where any income by way of interest on securities is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation 2.—[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.]
(Republished with amendments)