Section 193 of Income Tax

Section 193 of the

Income Tax Act mandates the withholding of tax at source on the interest earned from securities. In this article, we provide a brief description of Section 193 of the Income Tax Act.

Tax Deduction

Taxes under this provision are deducted in the event of a payment or credit to the account of a resident taxpayer.

Rate of Deduction

The stipulations of this section mandates the deductor to deduct tax at the rate of 10% from the sum of interest. On the other hand, payees who fail to furnish their Permanent Account Number (PAN) would incur tax deductions at the higher of the following rates:

Higher than the rate specified in the relevant provision of the Income-tax Act.
Higher than the rates prevalent (based on the stipulations of the most recent Finance Act).
At the rate of 20%.

Due Date of Tax Credit

Taxpayers, who are entrusted with the obligation of deducting tax at source must deposit the sum so deducted to the credit of the Central Government. While tax deducted for the months of April to February must be deposited within seven days from the end of the month in which tax is deducted, deductions for the month of March must be deposited within the 30

th of April.

Penalty for Delayed Remittance

Given a scenario where the tax deductor defaults in remitting the amount so deducted (in part or full), he/she would be levied with the following rates of simple interest:

Delayed deduction will incur interest of 1% for every month of delay or its part thereof.
Delayed remittance of the deducted amount will incur an interest of 1.5% for every month of delay or its part thereof.

Exemptions u/s 193

The following are exempted from TDS:

A National Defence Bond held by a resident, the rate of interest for which is 4.25%.
National Defence Loans availed during the period of 1968 or 1972, which is charged at an interest rate of 4.25%.
Interest payable on National Defence Loan.
Interest payable on 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 an account payee cheque (applicable for resident individual, resident or HUF).
Overdue interest on any security of the Central Government or State Government provided that the interest is not above Rs. 10,000 for a financial year (will not be applicable for 8% Savings (Taxable) Bonds, 2003).
Interest payable on certain notified debentures issued by any institution/authority, public sector company or any co-operative society.
Interest payable to certain companies established under the General Insurance Business Act or any other insurer.
Interest payable on dematerialized security issued by a company provided that the security is listed on a recognized stock exchange as per the regulations of the Securities Contracts (Regulation) Act, 1956.
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 a sum of 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 custody of a certificate that permits no deduction or less deduction of tax.

Certificate for Nil/Less Deduction

The certificate permitting the assessee to claim nil/low deduction can be obtained from the Assessing Officer by filing an application in Form No.13.

TDS Certificate

Deductors of tax are required to issue TDS certificate to the deductee in

Form 16A for tax deducted at source other than salary. The certificate must be dispersed on a quarterly basis. The following are the specified dates of deduction:

TDS for the months of April-June – 15th August
TDS for the months of July-September – 15th November
TDS for the months of October-December – 15th February
TDS for the months of January-March – 15th June

TDS Return

The government considers it mandatory for the deductors of tax to specify the details of TDS payments made to the government in the form of a return. TDS returns must be filed on a quarterly basis.

Expenses not Deducted for Non-TDS

Any expense for which tax is deducted during a given year and deposited within the due date of filing returns is deductible in the year in which the expenditure is incurred. Payments disallowed by this provision would be allowed as deduction while computing the income of the year in which the deducted tax was remitted to the government.

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Frequently Asked Questions

Common questions about Section 193 of Income Tax Act: TDS on Securities Interest.

Section 193 of the Income Tax Act mandates the deduction of tax at source (TDS) on the interest earned from securities. It requires the payer to deduct tax at a prescribed rate before making payments or crediting interest on securities to a resident taxpayer's account.

The default rate of tax deduction under Section 193 is 10% of the interest payable. However, if the payee fails to provide their Permanent Account Number (PAN), the TDS rate is higher of the following: the rate specified in the relevant provision of the Income Tax Act, the rate in force based on the latest Finance Act, or 20%.

The tax deducted under Section 193 must be deposited to the credit of the Central Government within seven days from the end of the month in which the tax was deducted (for the months of April to February). For the month of March, the TDS must be deposited by the 30th of April.

If the tax deductor fails to remit the TDS amount (partially or fully) within the prescribed time, they are liable to pay simple interest at the rate of 1% for every month or part thereof for delayed deduction, and 1.5% for every month or part thereof for delayed remittance.

Yes, there are several exemptions from TDS under Section 193, including interest on certain government bonds, debentures issued by companies where the public is substantially interested (subject to conditions), interest on dematerialized securities listed on recognized stock exchanges, and interest paid to certain insurance companies.

An assessee can obtain a certificate for nil or lower TDS deduction by filing an application in Form No. 13 with the Assessing Officer.

The tax deductor is required to issue a TDS certificate in Form 16A to the deductee, specifying the amount of tax deducted at source. The TDS certificate must be issued on a quarterly basis by the 15th of August, November, February, and June.

A TDS return is a mandatory return that tax deductors must file with the government, providing details of the TDS payments made. TDS returns are required to be filed on a quarterly basis.

If tax was not deducted on an expense during a given year, the expense cannot be claimed as a deduction while computing the income for that year. However, the deduction can be claimed in the year in which the TDS was remitted to the government.

Yes, Section 193 provides an exemption from TDS for interest payable on dematerialized securities issued by a company, provided that the security is listed on a recognized stock exchange as per the Securities Contracts (Regulation) Act, 1956.