TDS on Interest on Securities
Introduction
Tax is deducted at source (TDS) at 10% under section 193 on interest payable on securities to a resident individual. The deduction is made at the time of credit or payment, whichever is earlier.
Applicability of TDS
- Deductor:Any person responsible for paying interest on securities.
- Deductee:A resident recipient of interest. If the recipient is a non-resident, TDS is deducted under Section 195.
- Time of Deduction:TDS is deducted at the time of credit or payment, including credit to a “Suspense Account.”
- Threshold:Tax is deducted if the amount of interest is more than Rs. 10,000 for a single payment or in the aggregate in a financial year.
TDS Rates
- Standard Rate:10% without surcharge or cess.
- Non-furnishing of PAN:TDS is deducted at the rate prescribed under Section 206AA, i.e. 20%.
Exemptions from TDS
TDS is not deducted in the following cases:
- Certain Government Securities:National Development Bonds, 7-Year National Savings Certificates, and other notified securities.
- Defence and Gold Bonds:Specific Defence Bonds and Gold Bonds (subject to declaration and threshold conditions).
- Interest to Insurance Companies:LIC, GIC, and other notified insurers.
- Interest on Debentures:Interest on Widely held company’s debentures payable to an individual or HUF up to Rs. 10,000, paid by account payee cheque.
- Interest Payable to Business Trusts:No TDS on interest payable by special purpose vehicles to business trusts.
- Interest to Certain Tax-Exempt Entities:Government undertakings, mutual funds, and entities benefiting the armed forces.
Compliance Requirements
- Nil or Lower TDS Deduction Certificate:The recipient may apply under Section 197 for a lower TDS rate or submit a self-declaration under Section 197A.
- TDS Deposit:TDS must be deposited within seven days from the end of the deduction month, except for March, which is due by April 30. Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statements:Quarterly TDS statements must be filed using Form 26Q.
- TDS Certificate:Form 16A must be issued within 15 days from the due date of the TDS return.
Penalties for Non-Compliance
- Failure to Deduct/Deposit TDS:Liable for interest under Section 201 and penalty under Section 271C.
- Late Filing of TDS Statements:Fee of Rs. 200 per day under Section 234E, plus penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificates:Subject to penalties under Section 272A.