Section 193 of the Income Tax Act addresses TDS on interest from securities like bonds and debentures. It ensures that the source deducts taxes on this income. The section figure out the rate, when it applies, and the exemptions for taxpayers in India.
Section 193 of Income Tax Act: TDS on Interest on Securities Explained
1) Who is Responsible for Deducting TDS under Section 193?
Under Section 193, the responsibility to deduct TDS lies with every person or entity making payment of income to a resident in the form of interest on securities.
2) Meaning of Interest on Securities under Section 2(28B)
As per Section 2(28B) of the Income Tax Act, interest on securities refers to:
- Interest earned on any security issued by the Central or State Government.
- Interest on debentures or other securities issued for money by a local authority, a company, or a corporation established under a Central, State, or Provincial Act.
3) Rate of TDS under Section 193 of the Income Tax Act.
The person responsible for making payment of interest on securities must deduct income tax at the prescribed rate. Under Section 193, payers must deducts TDS at 10% on such interest, applicable to both domestic companies and non-corporate resident taxpayers.
4) Time of TDS Deduction under Section 193
TDS on interest under Section 193 must be deducted by payer at the time of credit or payment, in other words whichever take place earlier. This means tax should be deducted when the interest is credited to the payee’s account or when it is paid in cash, cheque, draft, or any other mode.
If the payer credits income to an account such as Interest Payable Account or Suspense Account, or by any other name in the books of the payer, it will be considered as a credit to the payee’s account, and TDS must be deducted accordingly.
5) Exemptions from TDS under Section 193
Section 193 provides some exemptions where no TDS deduction is required on interest from securities. These exemptions include:
1. Certain Bonds and Certificates
- National Development Bonds
- 7-Year National Savings Certificates (IV Issue)
2. Debentures and Bonds Notified by the Government
- Debentures issued by public sector companies, co-operative societies, or notified authorities.
- Notification No. 27 & 28/2018 exempts a) Power Finance Corporation Limited (PFC) 54EC Capital Gains Bonds b) Indian Railway Finance Corporation Limited (IRFC) 54EC Capital Gains Bonds
3. Government Securities
No TDS on securities issued by the Central or State Government.
on the other hands, for taxable savings bonds such as:
- 8% Savings Bonds, 2003
- 7.75% Savings Bonds, 2018
- Floating Rate Savings Bonds, 2020 (Taxable)
TDS applies only if interest payable exceeds ₹10,000 in a financial year.
4. Debentures of Widely Held Companies
No TDS on interest paid on debentures (listed or unlisted) issued by companies in which the public is substantially interested, provided:
- Payment is made through an account payee cheque.
- The total interest paid to a resident individual or HUF does not exceed ₹5,000 in a financial year.
5. Securities Held by Insurance Companies
No TDS if interest is payable on securities owned by:
- Life Insurance Corporation (LIC)
- General Insurance Corporation (GIC) and its subsidiaries
- Any other insurer having full beneficial ownership of such securities.
6) Conclusion
Section 193 of the Income Tax Act plays a key role in ensuring timely tax collection on interest from securities. While the common TDS rate is 10%, there are multiple exemptions and conditions based on the type of security, the payee, and the amount of interest earned. Therefore understanding the rules for applicability, timing, exemptions, and penalties helps taxpayers avoid non compliance and unnecessary deductions.