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.
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:
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:
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:
January - March: Due Date 31st May
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.
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.
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.