Section 193 of Income Tax Act - TDS on Interest on securities

Tax Deducted at Source (TDS) is a system where the payer deducts tax. As per Section 193 of the Income-tax Act 1961, if a person pays interest on securities to a resident, they must deduct TDS. This article will discuss Section 193, TDS rate, deductor's duties, exemption limits, default consequences, and other key points about TDS on interest on securities.

Section 193 Applicability 

Section 193 of the Income-tax Act 1961 is applied to the payment of interest on securities for residents but not for non-residents. "Interest on Securities", defined under Section 2(28B) of the same act, includes interest on securities of the Central or State Government, debentures, or other securities issued by a local authority/company/corporation established by a Central, State, or Provincial Act.

Rate of TDS 

The TDS rate for interest on securities is 10% if the payee provides their Permanent Account Number (PAN). If the PAN is not provided, the deduction will be at the maximum marginal rate.

Responsibilities of the Deductor 

Any payer of security interest to a resident is required to deduct tax under Section 193. This tax is deducted when the income is credited to the recipient or at the time of payment, whichever comes first. 

Exemption Limits 

Section 193 of TDS does not specify any exemption limits except for the following two cases: 

1. If a public limited company pays interest on debentures to an individual or Hindu Undivided Family (HUF) via an account payee cheque, the exemption limit is ₹ 5,000. 

2. For 8% saving (taxable) bonds, the exemption limit is ₹ 10,000. 

Tax must be deducted under Section 193 only if the interest payout exceeds these threshold limits.

Exclusion of Certain Interest Payments 

Some interest payments are excluded from the TDS requirement under Section 193, including:

• National Savings Certificate (7-year IV issue)
• National Development bonds
• 4.25% National Defence Loan, 1968 or 4.75% National Defence Loan, 1972, held by an individual
• For resident individuals owning 4.25% National Defence Bonds issued in 1972, the TDS is applicable as well.
• 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980, held by a resident individual with nominal value not exceeding ₹10,000 during the interest period
• Debentures issued by notified central government bodies
• Interest payable on any Central Government or State Government security
• Securities owned by Life Insurance Corporation
• Securities owned by General Insurance Corporation or in which it has a full beneficial interest
• Securities owned by any other insurer or in which it has a full beneficial interest

Amendment in Budget 2023 

In the Budget 2023, Section 193 was amended. The clause stating no tax will be deducted on interest from any security issued by a listed company in India was removed. Hence, from 1st April 2023, a 10% TDS will be deducted on listed Non-Convertible Debentures (NCD) as well.

Deposit of Tax Deducted 

The tax deducted under Section 193 should be deposited within 7 days of the next month in which it is deducted. For example, if tax is deducted on 20th June, it should be deposited by 7th July. The only exception is for the tax deducted in March, which should be deposited by 30th April. 

Consequences of Default 

If the tax is not deducted, a 1% interest per month will be charged from the date the tax was due until it is deducted. If the tax is deducted but not deposited, a 1.5% interest per month will be charged from the date of deduction to the date of deposit. 

TDS Certificate Issuance under Section 193 

The deductor must follow the timelines for the issuance of the TDS certificate under Section 193. Non-government deductors must provide Form 16A to the deductee quarterly within these dates: 

• April - June: Due Date 15th August
• July - September: Due Date 15th November
• October - December: Due Date 15th February
• January - March: Due Date 15th June

TDS Return Filing

Along with TDS certificates issuance, the deductor must also submit a quarterly return in Form 26Q. Here are the due dates for filing the TDS return under Section 193:

• April - June: Due Date 31st July
• July - September: Due Date 31st October
• October - December: Due Date 31st January

January - March: Due Date 31st May

Frequently Asked Questions (FAQs)

1. Is any deductee exempt from the deduction?

Yes, if a deductee is an individual and provides a declaration in Form 15G/15H stating that their total income does not exceed taxable limits and no tax is due, there is no need for TDS deduction on these payments. 

2. How can TDS at a higher rate be rectified if PAN details were incorrect?

If TDS at a higher rate is deducted due to incorrect PAN details, this can be fixed by providing the correct details to the deductor. 

3. Does Section 193 apply if the interest payable has been credited to the "Suspense Account"?

Yes, Section 193 applies even if the income by way of interest on securities has been credited to any account, regardless of what it's called. Any crediting of interest income triggers the provisions of this section. 

In conclusion, Section 193 of the Income-tax Act 1961 requires the deducting of TDS on interest on securities for a resident. Deductors should understand the TDS rate, their responsibilities, exemption limits, consequences of default, and comply with the timelines for TDS certificate issuance and return filing. By following these rules, deductors can ensure smooth transactions and avoid penalties.