Section 193 explains the rules for deducting tax on interest payments from securities. If someone pays interest on securities to a resident (a person living in India), they must deduct tax from that payment according to Section 193.
These rules do not apply when the interest is paid to a non-resident (a person not living in India).
Section 193 mainly deals with how tax is deducted on interest income from various types of securities. In this section, we’ll explore how Section 193 works and its implications for tax deductions on interest payments.
Section 193: TDS on Interest from Securities
According to the Income Tax Act, “interest on securities” refers to any interest earned from:
- Government-issued securities (both state and central)
- Debentures or securities issued by companies, corporations, or local authorities set up by government laws.
If you receive any interest from these sources, it will be subject to tax deductions under Section 193.
Key Provisions of Section 193:
- Tax Deduction at Source (TDS): When interest is paid, the payer must deduct a certain amount as tax before making the payment to the recipient.
- Who it Applies To: This applies to interest payments made to residents in India.
- Non-Residents: The TDS rules in Section 193 do not apply when the interest is paid to non-residents.
In summary, Section 193 outlines how tax is deducted on interest earned from various securities, specifying who is responsible for the deductions and under what conditions.
Who Must Deduct TDS Under Section 193?
Anyone who pays interest on securities to a resident in India is required to deduct tax before handing over the interest payment. This means that the payer is responsible for making the tax deduction before the interest amount is disbursed to the recipient.
Rate and Timing of Tax Deduction Under Section 193
The TDS rate under Section 193 is 10%.
Timing of Deduction
Tax must be deducted at the earlier of two events:
- When the interest amount is credited to the recipient’s account.
- When the actual payment is made (whether in cash, cheque, or other forms).
If the recipient (payee) does not provide a Permanent Account Number (PAN), the TDS will be deducted at the Maximum Marginal Rate. If certain conditions are met, a lower TDS certificate or a Nil TDS certificate under Section 197 can be issued, allowing for a reduced tax deduction or no deduction at all.
Due Date for Depositing TDS to the Government
Time Limits for TDS Deposit:
- If credited in March: The TDS must be deposited on or before April 30.
- If credited in any other month: The TDS must be deposited within 7 days from the end of that month.
This means you need to ensure the TDS is paid to the government within these specified time frames to avoid penalties.
Penalties for Delayed TDS Payment and Return Filing
Timely payment and accurate filing of Tax Deducted at Source (TDS) are essential responsibilities for individuals and businesses.
Failure to comply with these requirements can result in financial penalties and interest charges.
This section outlines the various penalties imposed under different provisions of the Income Tax Act for late TDS deductions, late payments, and delayed return filings, emphasizing the importance of adhering to tax obligations to avoid unnecessary costs.
1. Late Deduction and Late Payment (Section 201(1A)):
If TDS has been deducted but not deposited, an interest of 1.5% per month (or part of a month) is charged on the amount from the date it was deducted until it is paid to the government.
If TDS has not been deducted at all, an interest of 1% per month (or part of a month) applies on the amount from the date it should have been deducted until it is deposited.
2. Penalty for Delayed Return Filing (Section 234E):
There is a penalty of ₹200 per day for every day the return is late, but the total penalty cannot exceed the amount of TDS owed
Example:
If ABC needed to file a TDS return for ₹2,500 and filed it 15 days late:
- Total penalty: 15 days × ₹200 = ₹3,000
- Since the penalty cannot exceed the TDS amount, the penalty would be capped at ₹2,500.
3. Penalties for Serious Delays (Section 271H):
A penalty between ₹10,000 and ₹1,00,000 may be imposed if:
- No TDS return is filed within one year of the due date.
- TDS, along with any late fees and interest, is not deposited with the government.
In summary, timely payment and filing of TDS returns are crucial to avoid significant penalties and interest charges.
Exemptions for TDS Deduction Under Section 193
TDS is not required to be deducted in the following cases:
- If debentures are issued by listed companies, no TDS will be deducted on interest amounts up to ₹5,000. This amount must be paid through an account payee cheque.
- For interest on 8% savings (taxable) bonds, no TDS will be deducted for amounts up to ₹10,000.
These exemptions help reduce the tax burden on smaller interest payments.
Interest Types Not Subject to TDS Under Section 193
The following types of interest are exempt from tax deduction under Section 193 of the Income Tax Act:
- Debentures from Notified Institutions: Interest on debentures issued by specified institutions, authorities, public sector companies, or cooperative societies.
- Interest to Insurers: Interest payable to the Life Insurance Corporation (LIC) or other insurers on securities they own or have a full beneficial interest in.
- Demat Securities: Interest on securities held in dematerialized (demat) form issued by companies listed on Indian stock exchanges.
- National Savings Certificate: Interest on the 7-year National Savings Certificate (IV issue).
- National Development Bonds: Interest on National Development Bonds.
- National Defence Loans: Interest on 4% National Defence Loan (1968 and 1972) held by individuals and Interest on 4% National Defence Bonds (1972) held by resident individuals.
- General Insurance Corporation (GIC): Interest to the GIC on securities it owns or in which it has full beneficial interest.
- Gold Bonds: Interest on 6% Gold Bonds (1977) or 7% Gold Bonds (1980) held by resident individuals, provided the total nominal value does not exceed ₹10,000 at any time during the interest period.
- Government Securities: Interest on securities issued by the Central or State Government.
- Other Insurers: Interest payable to any other insurer on securities they own or have a full beneficial interest in.
These exemptions help clarify situations where TDS is not applicable, ensuring that certain interest payments remain tax-free.
Frequently Asked Questions
What does ‘securities’ mean in ‘interest other than on securities’ in Section 194A for TDS?
In legal terms, “securities” include:
- Shares, stocks, bonds, debentures, and other marketable securities of companies or corporations.
- Derivatives.
- Units or instruments issued by collective investment schemes.
- Security receipts as defined in relevant financial laws.
- Units or instruments from mutual fund schemes.
- Government securities.
- Other instruments declared as securities by the Central Government.
- Rights or interests in these securities.
Securities do not include unit-linked insurance policies or similar instruments that combine life risk benefits and investments.
How do I claim excess TDS deducted on corporate bonds?
If excess TDS was deducted due to incorrect Permanent Account Number (PAN) details, you can claim a refund by providing the correct PAN and asking your employer to file a revised TDS return.
What is the difference between TDS on advertising under Section 194C and Section 194J?
Section 194C applies to contract services, meaning services received from an advertising agency. In contrast, Section 194J applies to professional services, such as those provided by individual professionals in advertising.
Is TDS applicable on interest paid to NBFCs?
Yes, interest paid to Non-Banking Financial Companies (NBFCs) is subject to TDS, as the exemption under Section 194A applies only to banks.
