Section 193 of Income Tax Act: TDS on Interest on Securities

What is Section 193 of Income Tax Act?

As an investor, understanding the tax implications of your investments is crucial for better planning and compliance. Section 193 of the Income Tax Act, 1961 plays an important role in this regard by governing Tax Deducted at Source (TDS) on interest earned on securities.

At Ultra, we help you make informed choices about your investments and their taxation. In this article, let’s break down Section 193, its TDS limits, rates, exemptions, and how it differs from related sections like Section 192, 194, and 194A.

Section 193 mandates that any person responsible for paying interest on securities must deduct TDS before making the payment to the investor.

• Interest on securities may include:

• Interest on debentures issued by companies.

• Interest on government securities.

• Interest on bonds issued by local authorities or statutory corporations.

The current TDS rate under Section 193 is 10%, provided the PAN of the payee is available. If the payee fails to furnish PAN, TDS is deducted at a higher rate under Section 206AA.

When is TDS under Section 193 Applicable?

TDS under Section 193 applies when the following payments are made:

• Interest on any securities issued by a company in the form of debentures.

• Interest payable on government securities.

• Interest on bonds or debentures issued by local authorities or statutory corporations.

Section 193 TDS Limit

There are certain thresholds and exemptions under Section 193:

• No TDS if interest on debentures issued by listed companies paid to a resident individual or HUF does not exceed ₹5,000 in a financial year and such interest is paid by an account payee cheque.

• No TDS on interest payable on 8% Savings (Taxable) Bonds, if the amount does not exceed ₹10,000 in a financial year.

• TDS is not applicable on interest payable to:

1. LIC,

2. General Insurance Corporation,

3. Other insurers,

4. Certain government bodies.

TDS Rate under Section 193

The standard TDS rate is:

• 10% when valid PAN is provided.

• 20% if PAN is not provided (as per Section 206AA).

• The deductor must deposit the TDS with the government within the prescribed timelines.

Exemptions Under Section 193

TDS under Section 193 shall not apply in the following cases:

• Interest payable on National Defence Bonds.

• Interest payable on National Savings Certificates.

• Interest payable on specified notified bonds.

• Interest payable to institutions like the RBI, LIC, GIC, etc.

Section 193 vs. Section 194 & 194A

Many taxpayers confuse Section 193, 194, and 194A. Here’s a quick difference:

Section 193: Deals with TDS on interest on securities.

Section 194: Deals with TDS on dividends.

Section 194A: Deals with TDS on interest other than securities, like fixed deposits, recurring deposits, etc.

Section 192: This is related to TDS on salary income.

So, if you’re earning interest from debentures or bonds, Section 193 applies. If your income is interest from bank FDs, then Section 194A is relevant.

Section 193: TDS on Debentures

When a company issues debentures, the interest paid to debenture holders is subject to TDS under Section 193. For example, if a company pays interest of ₹20,000 to a debenture holder, it must deduct TDS at 10%, i.e., ₹2,000, before making the payment.

If the total interest does not exceed ₹5,000 for an individual/HUF and is paid through an account payee cheque, no TDS is required.

Declaration for Non-Deduction

A resident individual or HUF can submit Form 15G (or Form 15H for senior citizens) to the payer if their total income is below the taxable limit. This declaration allows them to receive interest without TDS deduction.

Interest on Securities in Income Tax

Interest on securities is taxable under the head ‘Income from Other Sources’ in your income tax return (ITR). Even if TDS is deducted, you must report the total interest income and claim credit for the TDS while filing your return.

Key Compliance for Payers

Companies, government bodies, and institutions paying interest on securities must:

• Deduct TDS under Section 193 at the correct rate.

• Deposit TDS within due dates.

• Issue TDS certificates (Form 16A) to investors.

• File quarterly TDS returns.

• Non-compliance attracts penalties and interest.

FAQs on Section 193

1. What is Section 193 of Income Tax Act?

It mandates TDS deduction on interest paid on securities like debentures, bonds, and government securities.

2. What is the TDS rate under Section 193?

The standard rate is 10% if PAN is provided; otherwise, 20%.

3. Is there any limit for TDS under Section 193?

Yes, for debentures issued by listed companies, no TDS if annual interest paid to individuals/HUFs does not exceed ₹5,000.

4. How is Section 193 different from Section 194A?

Section 193 covers TDS on interest on securities; Section 194A covers TDS on other interest like FDs.

5. How can I avoid TDS under Section 193?

If your total income is below taxable limits, you can submit Form 15G/15H to avoid TDS.