[Section 193]: Deduction of Tax from Interest on Securities

Section 193 of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on interest earned from specified securities. This provision ensures advance tax collection on such income, with exemptions for certain cases. Below is a detailed breakdown:

1. Key Provisions of Section 193

1. Applicability of Section 193

• Applies to: Interest paid on securities like:
  • Government bonds (Central/State).
  • Debentures issued by companies/local authorities.
• Exclusions:
  • Payments to non-residents(covered under Section 195).
  • Interest below ₹10,000 (as per Budget 2025 update).

2. TDS Rate and Deduction Timing

• Credit to payee’s account.
• Actual payment (cash/cheque). |

| Lower/Nil TDS | Possible via Form 13 (Section 197) or Form 15G/15H (if income below taxable limit). |

3. Key Exemptions

No TDS is deducted on interest from:

• National Defence Bonds(4.25% interest).
• 7-year National Savings Certificates.
• Gold Bonds (1977/1980)if nominal value ≤ ₹10,000.
• Listed debentures(pre-2023; post-Budget 2023, TDS applies).

4. Compliance Requirements

• Deposit Deadline:
  • March credits: By April 30.
  • Other months: Within 7 daysof month-end.
• TDS Return: File Form 26Q
• TDS Certificate: Issue Form 16Ato payee quarterly.

5. Penalties for Non-Compliance

• Late Deduction: Interest @ 1% per month.
• Late Payment: Interest @ 5% per month.
• Late Filing: Penalty up to ₹1 lakh(Section 271H).

Example Scenario

• Investment: ₹5 lakh in 8% debentures → Annual interest = ₹40,000.
• TDS: ₹4,000 (10%) deducted if PAN provided; net payment = ₹36,000.

Key Takeaways

✅ PAN Mandatory: Avoid higher TDS (20%).

✅ Exemption Threshold: ₹10,000 (FY 2025-26).

✅ Form 15G/15H: Submit to avoid TDS if income is tax-exempt.

2.  Lower/Nil TDS Deduction Under Section 197 & Rules 28, 28AA

Here’s a concise yet comprehensive explanation of Section 197 and Rules 28 & 28AA regarding lower/nil TDS deduction:

1. When Can TDS Be Reduced or Avoided?

• Applicability: Payments like interest (194A), rent (194-I), professional fees (194J), etc.
• Conditions:
  • Payee’s estimated total tax liability is lowerthan standard TDS rate.
  • Payee provides valid lower/nil deduction certificate.

2. Key Provisions

3. How to Get Lower/Nil TDS?

1. Apply via Form 13to Assessing Officer with:
   • Income computation
   • Tax liability proof
   • Previous year’s ITR (if available)
2. AO Verifiesand issues certificate with:
   • Specific lower rate
   • Validity period (usually 1 FY)

4. Important Exemptions (Rule 28)

No TDS required on:

• Interest from tax-free bonds
• Payments to government/RBI
• Income exempt under Section 10

5. Compliance Requirements

• Deductor Must:
  • Verify certificate authenticity
  • Apply specified rate
  • Maintain records for 7 years
• Payee Must:
  • File annual return showing actual income
  • Pay balance tax if any

6. Example Scenario

• Case: Professional earns ₹15L annually but has ₹5L deductions
• Action: Gets certificate for 5% TDS (vs standard 10%)
• Savings: ₹50,000 less TDS deducted

Note: For NRIs, DTAA provisions may override these rules.

Penalty: False declarations attract 100-300% of tax evaded under Section 271(1)(c).