Under Section 2(28B), Interest on Securities means.—
(i) interest on any security of the Central Government or a State Government:
(ii) interest on debentures or 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”.
In case of cumulative debentures or bonds, tax is required to be deducted at source every time the interest is credited in the account books of the payee and is not to be postponed till the maturity of debentures or bonds. [Circular No. 643. dated 22.1.1993].
The deduction under this section is required to be made in case of resident only. For non-resident, the provisions are different and are contained in section 195.
1. Who is liable to deduct TDS from Interest on Securities
The person responsible for paying to a resident any income by way of interest on securities shall deduct income tax at the rates in force on the amount of interest paid / payable.
Person responsible for deduction of tax at source [Section 204(ii)]:
“Person responsible for paying means” in the case of payments of income chargeable under the head “Interest on securities”, (other than payments made by or on behalf of the Central Government or the Government of a State), the local authority, corporation or company, including the principal officer thereof.
2. When does liability to deduct TDS from Interest on Securities arise:
The tax is to be deducted—
(a) either at the time of pay meat thereof in cash or by issue of a cheque or draft or by any other mode, or
(b) at the time of credit of interest to the account of the payee or to interest payable account or suspense account,
whichever happens earlier.
As per Explanation to section 193, 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 tax shall have to be deducted at source.
3. Rate of TDS for Financial Years 2019-20 and 2020-21 in case of Interest on Securities
(1). In the case of a person (other than a company) resident in India
Income by way of interest payable on—
|(A)||Any debentures or securities other than a security of the Central or State Government for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act||10%|
|(B)||any debentures issued by a company where such debentures are listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 and any rules made thereunder||10%|
|(C)||Debentures not listed on a recognised stock exchange||10%|
|(D)||8% / 7.75% Savings Taxable Bonds 10%||10%|
(2). In the case of a Domestic Company
Any interest on securities : 10%
1. No surcharge, or health and education cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
2. 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%.
3. 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.
4. 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%.
4. Exemption from TDS Deduction from Interest on Securities
No tax is to be deducted if interest on securities is payable on account of the following:
(i) Any such debenture, issued by an institution or authority, or any public sector company, or any co-operative society (including Co-operative Land Mortgage Bank or Co-operative Land Development Bank) as the Central Government may notify.
(ii) Any interest payable on any security of the Central Government or State Government. however, tax shall be deductible at source in case of 8% Saving (Taxable) Bonds 2003, or 7.75% Savings (Taxable) Bonds, 2018 provided the interest on such bonds exceeds Rs. 10,000 during the financial year.
(iii) Securities which are mentioned in clauses (1), (ia), (ib), (iia) and (iii) of the proviso to section 193.
(iv) 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.
No tax is required to be deducted at source on interest payable on ‘Power Finance Corporation Limited 54EC Capital Gains Bond” and “Indian Railway Finance Corporation Limited 54EC Capital Gains Bond” Notification No. 27 & 28/2018, dated 18.6.2018 (see clause (i) above).
5. Where no Tax is to be Deducted at Source from Interest on Securities
In the following cases, tax is not to be deducted at source.
(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 Rs. 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 Rs. 5,000.
(C) 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 and the rules made thereunder.
(D) Interest paid or credited on 8% Saving (Taxable) Bonds 2003 / or 7.75% Savings (Taxable) Bonds, 2018 issued by the Central Government provided the interest on such bonds does not exceed Rs. 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. 1 5G 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.
However, as per section 197A (1B), the assessee cannot furnish the declaration under this clause if the aggregate amount of the following incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is nor chargeable to tax:
(1) Payment from accumulated balance of recognized provident fund, if taxable.
(2) Interest on securities
(3) Interest other than interest on securities
(4) Payment in respect of life insurance policy, if taxable.
(5) Insurance commission
(6) Payment in respect of deposit under National Saving Scheme.
(7) Payment in respect of rent.
Notwithstanding anything contained in section 197A(1B), above, no deduction of tax shall be made from the above incomes in the case of an individual resident in India who is of the age of 60 year or more at any time during the previous year, if such individual furnishes to the payer, a declaration in writing in duplicate in Form No. 15H to the effect that the tax on his estimated total income of the previous year in which the above income is to be included in computing has total income will be Nil.
In the case of such senior citizen, the income from the above sources can be more than the maximum amount which is not chargeable to tax but the tax on his estimated total income, inclusive of such incomes, should be nil.
As per section 206AA(2), declaration under Form No. 15G or 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% except where the payment is made from accumulated balance of recognised provident fund where it will be deducted at the maximum marginal rate.
The payer of the income is required to deliver to the Principal Commissioner or Commissioner one copy of declaration given under new Form 15G on or before the 7th day of month next following the month in which the declaration is furnished to him.
(F) Any payment made to New Pension Scheme 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 securitisation 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 the 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.
6. Where the TDS either not to be deducted or to be deducted at Lower Rate [Section 197 Rule 28 and 28AA]
The assessee to whom interest is payable may make an application in Form No. 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.
An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, under section 197(1) shall be made in Form No. 13 electronically,—
(i) under digital signature; or
(ii) through electronic verification code.
Where such certificate is given, it will be valid for such period of the previous year as may be specified in the certificate and the person responsible for paying such interest, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be.
The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued except in certain cases direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate
However, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No. 13 under that section contains the Permanent Account Number of the applicant.