In this article we will discuss in detail the TDS on Interest on securities.
What is interest on securities?
Interest on securities is defined in section 2(28B) of Income Tax Act, 1961. It means
- Interest on any Government security, it may issued by State or Central.
- Interest on debentures or other any other securities which issued for money by a company or a local authority or a Central/state corporation.
What is Security?
The term security is defined in section 2(h) of Securities Contracts (Regulation), Act 1956.
Securities include:
- shares, stocks, scrips, bonds, debentures, debenture stock or other like nature marketable securities in or of any company or body corporate;
- derivative;
- units or any other instrument of a collective investment scheme;
- security receipt as defined in section 2(zg) of the SRFAESI Act, 2002;
- Mutual fund scheme units
- any certificate or instrument issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;
- Government securities;
- Central Government notified securities; and
- rights or interest in securities;
TDS on Interest on Securities
It is covered under section 193 of Income Tax Act.
The person responsible for paying to a resident any income by way of interest on securities shall, at the time of credit or at the time of payment, whichever is earlier, deduct TDS.
This Interest is income for investors and is paid after deducting TDS u/s 193 of the Income tax act.
Example 1 –Mr. A Invest in 8% debenture Rs. 2,00,000 of B.Ltd. Mr. A receives interest of Rs. 12,000. B Ltd will deduct TDS U/S 193 @7.5 % of Rs. 12000 i.e. Rs. 900 and will pay the remaining amount of Interest Rs. 11,100 to Mr. A.
TDS Rate on Interest on Securities
TDS will be deducted @7.5% (earlier @10%).
(TDS rate has been reduced to 7.5% due to covd-19 from 14/05/2020 till 31/03/2021.)
If the PAN details is not furnished by the receiver of Interest then TDS would be deducted @20% of the Interest amount.
Non Applicability of section 193
No TDS on Interest on securities is deducted on interest payable:
1) on 4 per cent National Defence Bonds, 1972, where the bonds are held by an resident individual
2) to an individual on 4 per cent National Defence Loan, 1968, or 1972.
3) on National Development Bonds; or
4) on 7-Year National Savings Certificates (IV Issue); or
5) 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 notified by central government. Like notification mentioned in the end of the article.
6) on 6 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, where the Bonds are held by an resident individual and nominal value of such securities does not exceed Rs. 10000 at any time during the period to which the interest relates.
7) on any security of the Central Government or a State Government:
Provided that nothing contained in this clause shall apply to the interest exceeding Rs 10,000 payable on 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year;
8) to an resident individual or a resident HUF, on any debenture issued by a company in which the public are substantially interested, if the amount of interest or the aggregate does not exceeds Rs .5000 during the financial year; and paid by account payee cheque;
9) Securities of LIC; or
10) to any securities of GIC or to any of the 4 companies, formed by virtue of the schemes framed in section 16(1) of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972); or
11) Security held by any other insurer;
12) Listed security in dematerialized form.
Notifications and updates for Section 193
Notification No 27 and 28/2018 dated 18-06-2018 notified that there is no need to deduct tax on interest payable on:
- Power finance corporation Limited 54EC Capital Gains Bonds
- Indian Railway Finance Corporation Limited 54EC Capital Gains Bonds
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