Bailabel Type : bailable

Description

Section 193 of the Income Tax Act, 1961 governs the deduction of tax at source (TDS) on interest earned on securities. This section primarily applies to securities, such as bonds, debentures, and other similar instruments, issued by the government, corporations, or other entities, where the interest is paid to the holder of the security. The section mandates the deduction of tax at source on the interest payments made to residents.

Key Points of Section 193:

1. TDS on Interest Paid on Securities:

• Section 193 mandates the deduction of tax at source (TDS) on the interest paid to the holder of securities (which may include bonds, debentures, etc.). This applies to interest payments made by companies, corporations, or the government on securities such as debentures, bonds, or other similar instruments.

2. TDS Rate:

• The rate of TDS on interest on securities is generally 10%. However, if the payee does not provide their Permanent Account Number (PAN), the TDS rate is higher, typically 20%, as per Section 206AA.

3. Exceptions:

• Exemption from TDS: No TDS is deducted on the interest on securities in certain cases:
  • If the interest payment is below Rs. 2,500 in a financial year.
  • If the payee is a Government or public sector undertaking.
  • In case the security is listed and the interest is paid by a listed company, the issuer may be eligible for certain exemptions under specified conditions.

4. TDS for Resident vs Non-Resident:

• For Resident: TDS is applicable as per the rates mentioned above (10% if PAN is provided).

• For Non-Resident: If the recipient is a non-resident, the interest payment may be subject to TDS at a different rate based on the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of the recipient. The TDS rate in such cases may be lower as per the treaty provisions.

5. Timing of TDS Deduction:

• TDS on interest is deducted at the time the interest is paid or credited to the account of the recipient, whichever is earlier.

6. Government and Non-Government Securities:

• For securities issued by the Government of India (GOI), the TDS is not applicable, i.e., no tax is deducted at source for interest payments on GOI securities.

• For securities issued by non-government entities (such as corporate bonds, debentures, etc.), TDS is applicable at the rate specified under this section.

7. Liability to Deduct TDS:

• The payer of interest (such as the company or corporation issuing the securities) is responsible for deducting the TDS on the interest payments made to the holder of the securities.

• The payer (e.g., a company) must ensure that TDS is deducted and remitted to the Income Tax Department in a timely manner.

8. Issue of TDS Certificate (Form 16A):

• The payer (e.g., issuer of securities) is required to provide the payee (holder of securities) with a TDS certificate (Form 16A), which outlines the amount of interest paid and TDS deducted during the financial year.

9. Refund of TDS:

• If excess TDS has been deducted, the holder of the securities can file an income tax return and claim a refund of the excess tax deducted. The TDS deducted is adjusted against the total tax liability of the individual or entity.

10. Non-Compliance and Penalty:

• If the payer fails to deduct TDS or deposits it late, they may be subject to penalties under Section 271C and interest under Section 220 for failure to pay the deducted TDS to the Government.

• Similarly, if the payee fails to file their tax returns or incorrectly reports the income and TDS deducted, they may also be subject to penalties.

Punishment

• Failure to Deduct TDS: Under Section 271C, a penalty may be imposed for failing to deduct TDS on interest on securities.

• Failure to Deposit TDS: If the TDS is deducted but not deposited, the payer is liable to a penalty under Section 271C and interest under Section 220.