Section 193 of Income Tax Act

Section 193 of the Income Tax Act plays a crucial role in the taxation framework of India, specifically concerning Tax Deducted at Source (TDS) on interest from securities. This section mandates the deduction of tax before making interest payments to resident taxpayers. Understanding its provisions is essential for individuals and entities managing securities-related income.

Investments in securities markets are subject to market risks. Please read all scheme-related documents carefully before investing.

Section 193 of the Income Tax Act governs the rules for TDS on interest payments arising from securities. Securities include instruments such as bonds, debentures, and government-issued certificates. Under this section, tax deduction is mandatory before disbursing interest income to resident taxpayers, ensuring compliance with tax laws and preventing tax evasion.

The scope of Section 193 extends to various types of securities, including corporate bonds, government securities, and debentures issued by companies. However, specific exemptions exist, which will be discussed later in the article. It is important to note that Section 193 applies only to interest payments made to resident taxpayers; non-residents are covered under separate provisions.

Interest on securities refers to the income earned by individuals or entities from investments in securities such as bonds, debentures, or government-issued instruments. This interest is typically paid periodically, and it constitutes taxable income under the Income Tax Act.

For example, if an investor holds 100 corporate bonds with an annual interest rate of 8%, the interest earned will be considered as "interest on securities" and may be subject to TDS as per Section 193.

The TDS rate applicable under Section 193 varies depending on the type of security. As per the latest provisions:

• Corporate securities: TDS is deducted at 10%.
• Government securities: No TDS is applicable.

These rates are subject to amendments, and taxpayers should regularly check for updates to ensure accurate compliance.

Let us consider an example to understand the deduction process under Section 193:

A resident taxpayer holds debentures issued by a company worth Rs. 10 lakh, offering an annual interest rate of 10%. The total interest for the year amounts to Rs. 1 lakh. As per Section 193, the company is required to deduct TDS at 10% before paying the interest.

Here is the breakdown:

• Total interest earned: Rs. 1,00,000
• TDS deducted (10%): Rs. 10,000
• Net interest paid to the taxpayer: Rs. 90,000

This ensures that the taxpayer’s liability is partially settled upfront, and the deducted amount is deposited with the government.

Certain payments are exempt from TDS under Section 193. These exemptions include:

• Interest on government securities: Payments on securities like treasury bills and bonds issued by the government are exempt.
• Interest paid to specific institutions: Payments to entities such as LIC, UTI, and approved provident funds are exempt.
• Interest on listed debentures: If the debentures are listed on a recognised stock exchange and paid to individuals, no TDS is required.

These exemptions aim to simplify compliance for certain categories of securities and entities.

Taxpayers who deduct TDS under Section 193 are required to file TDS returns. The process involves:

• Form submission: Use Form 26Q for TDS on interest payments.
• Deadlines: Quarterly filing deadlines must be adhered to.
• Details required: Include PAN details of the deductee, amount deducted, and deposited.

Failure to file returns on time may result in penalties, making it essential for taxpayers to comply with deadlines. 

Non-compliance with Section 193 can attract penalties, including:

• Interest on delayed payment: Interest is charged at 1% per month for late TDS deductions and 1.5% per month for late deposit of TDS.
• Late filing fees: A fee of Rs. 200 per day may be imposed for delayed TDS return filing.
• Prosecution: In severe cases, prosecution may be initiated under Section 276B for willful default.

Ensuring timely deduction and deposit of TDS is critical to avoid penalties.

Under Section 193, the deductor must issue a TDS certificate (Form 16A) to the deductee. Key details include:

• Issuance timeline: Certificates must be issued within 15 days from the due date of filing TDS returns.
• Importance: These certificates help taxpayers claim credit for TDS while filing their income tax returns.

Section 193 of the Income Tax Act is a vital provision for taxpayers earning interest on securities. It ensures proper tax deduction and compliance with Indian tax laws. Understanding its applicability, exemptions, and penalties is crucial for managing securities-related income effectively.

Investments in securities markets are subject to market risks. Please read all scheme-related documents carefully before investing. Bajaj Broking does not provide investment advisory services.