Section 193: TDS on Interest on Securities
A guide to Section 193: TDS on Interest on Securities
In this post, we will talk about TDS deductions under Section 193. Let’s take a closer look at each section:
Introduction
Section 193 deals with the TDS on securities interest. Section 193 applies if a person distributes income to a resident in the Form of interest on securities.
However, this does not apply if the interest on securities is paid to a non-resident. Payments paid to non-residents are subject to TDS, although tax is deducted in accordance with Section 195.
Who shall deduct TDS under Section 193?
Any person who needs to pay interest on securities to a resident needs to deduct TDS under Section 193.
Rate and time of TDS deduction u/s 193
The tax rate under section 193 is 10%. Deduction occurs sooner, either when income is credited to the payee’s account (receiver) or when actual payment (cash, check, draft, or other) is made. With a PAN or if the payee provides it, TDS will be deducted at the Maximum Marginal Rate (MMR).
However, if conditions are met, a lower TDS certificate and a nil TDS certificate can be issued under Section 197.
Penalty for delayed payment and delayed return filing
Section 201(1A)
Late Deduction of TDS:If TDS is deducted but not deposited to the government, then interest is levied @1.5% per month/part of a month on the TDS amount from the date TDS was deducted to when TDS was deposited.
Late Payment of TDS: If TDS is not deducted, then interest is levied @1% per month/ part of a month on the TDS amount from TDS was removed when TDS was deposited.
Section 234E :
The penalty under this clause is Rs. 200 each day until the Deductor corrects the mistake. However, The penalty amount cannot exceed the amount of TDS for which a return must be filed.
Imagine ABC is required to file his TDS return for Q2 (July – September), with a due date of October 31st, and ABC files his return for Q2 on November 15th. The total TDS amount for which a return must be filed is Rs. 2,500. What will the penalty under Section 234E be?
|
Particular |
Amount (Rs ) |
|
Total number of days delayed |
15 days |
|
Penalty (15 x 200) |
3,000 |
|
Amount of TDS |
2,500 |
|
Penalty under section 234 E (Penalty or TDS amount, whichever is less) |
2,500 |
Section 271H :
Under this section, a penalty ranging from Rs. 10,000/- to Rs. 1,00,000/- may be levied by the Assessing Office in the following situations :
- In the case that no TDS return is filed within one year of the due date and
- TDS, late fees, and interest are not paid to the government.
Exemptions u/s 193
The following are exempted from TDS:
- A National Defence Bond held by a resident, the interest rate for which is 4.25%.
- National Defence Loans availed during 1968 or 1972, which is charged an interest rate of 4.25%.
- Payable interest on loans for national defense.
- Interest is payable on a 7-year National Savings Certificate.
- Interest payable on debentures issued by a company wherein the public is substantially interested provided that the sum of interest is confined to Rs 5000; and the company deposits the interest courtesy of an account payee cheque (applicable for resident individual, resident, or HUF).
- Unpaid interest on any security of the Central Government or State Government provided that the claim is at most Rs. 10,000 for a financial year (will not be applicable for 8% Savings (Taxable) Bonds, 2003).
- Certain notified debentures issued by any institution/authority, public sector company, or cooperative organization are subject to interest payments.
- Any other insurer or the companies established under the General Insurance Business Act is entitled to interest.
- Interest payable on dematerialized security issued by a company provided that the security is listed on a recognized stock exchange as per the Securities Contracts (Regulation) Act, 1956 regulations.
- Interest payable on 6.5% gold bonds, 1977 or 7% gold bonds, 1980, held by a resident individual if the total nominal value of such bonds is limited to Rs. 10,000 during the period to which the interest relates.
- Payee, who is not a company or a firm, has issued Form no 15G/15H.
- Payee is in the custody of a certificate that permits no deduction or less deduction of tax.
Issuance of TDS certificate u/s 193
The issuance of the TDS certificate for the TDS under Section 193 is the same as discussed in the case of Section 194A.
Every Deductor must produce a TDS certificate to the deductee in Form No. 16A (for tax deducted on payments other than salary).
The TDS certificate is issued quarterly on the following dates:
|
Quarter |
Due Date for non-government Deductor |
|
April to June |
15th August |
|
July to September |
15th November |
|
October to December |
15th February |
|
January to March |
15th July |
FAQ
1, Is it mandatory for the deductor to file a TDS return?
Ans: Yes, the government considers it compulsory for tax deductors to specify the specifics of TDS payments made to the government in the form of a return. TDS returns must also be filed quarterly.
2, What is the TDS rate if PAN is unavailable?
Ans: If the payees’ Permanent Account Number (PAN) is not provided, all transactions liable for TDS will have tax deductions at a higher rate of 20%.
3, Is there an extra cess applied to the base rate?
Ans: No, the deduction is a flat 10% rate with no educational cess, surcharge, or SHEC applied to the rate.
And with that, we end our discussion on Section 193: TDS on Interest on Securities. If you have any questions, drop them in the comment section below.
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