Considering all incomes in India are taxable, those earning interest on securities are also liable to pay tax. This tax is deducted in the form of TDS under the provisions of Section 193 of the Income Tax (I-T) Act, 1961.
See also: TDS on sale of property in 2023
What are securities?
In India, securities refer to various financial instruments that are categorised as capital assets and are subject to specific tax treatment. Securities include:
Shares: Shares or stocks of companies listed on recognized stock exchanges in India or outside India.
Bonds: Government bonds, corporate bonds, debentures, and other debt instruments.
Mutual funds: Units of mutual funds, including equity funds, debt funds, and hybrid funds.
Derivatives: Futures and options contracts traded on recognized stock exchanges.
Equity-oriented mutual funds: Mutual funds where at least 65% of the portfolio is invested in equity shares of domestic companies.
Units of business trusts: Units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
Zero coupon bonds: Bonds issued at a discount to face value with no periodic interest payments.
Government securities: Securities issued by the central or state government, such as treasury bills and state development loans.
Preference shares: Shares that carry preferential rights over equity shares, including redeemable preference shares.
Section 193: TDS on interest on securities
Section 193 says that a person, who is paying interest on securities to a resident Indian, has to deduct tax on this income if the limit of Rs 5,000 on debentures and Rs 10,000 on others is crossed.
Section 193: Scope
Section 193 is applicable on resident individuals and Hindu Undivided Families. The provisions of this section are not applicable to Non-Resident Indians (NRIs), who are covered under Section 195.
Who will deduct the TDS?
As in case of all TDS deductions, the one paying the income is liable to make the tax deduction at source.
Rate of TDS on interest on securities
TDS on interest income on securities is 10%. In case, the person earning this income is not furnishing his PAN, the person deducting the TDS will use the highest of the following rates. Tax shall be deducted at higher rates, namely:
- At rates specified in the relevant provisions of the act
- At rate or rates in force
- At the rate of 20%
When is the TDS deducted and deposited?
TDS on interest income on securities is deducted at the time of payment of this income. This TDS must then be deposited with the Income Tax Department within seven days of the next month when the TDS is deducted. If TDS is deducted in March, it must be paid by April 30.
TDS certificate
The person deducting the TDS must issue a TDS certificate in Form-16A by the following dates:
April-June: August 15
July-September: November 15
October-December: February 15
January-March: June 15
Penalty on delay in TDS deductions
Under Section 201, in case of a delay in TDS deductions or submissions to the I-T department, interest of 1% for every month or part of a month on the amount of tax is levied.
Exemption under Section 193
- Interest payable on 4¼% National Defence Bonds, 1972
- Interest payable to an individual on 4¼% National Defence Loan, 1968 or 4¾% National Defence Loan, 1972
- Interest payable on National Development Bonds
- Interest payable on Seven-Year National Savings Certificates
- Interest payable on debentures issued by the central government-specified institution, authority, public sector company or cooperative society, including a cooperative land mortgage bank or a cooperative land development bank.
- Interest payable on 6½% gold bonds, 1977, or 7% gold bonds, 1980, if the individual makes a declaration in writing that the total nominal value of bonds did not exceed Rs 10,000 at any time during the period to which the interest relates to.
- Interest payable on any security of the central government or state governments.
FAQs
What is security?
The word ‘security’ is not defined in the I-T Act. According to the Oxford English Dictionary, security is a document held by a creditor as guarantee of his right to payment.
Is interest income on securities is taxable?
Yes, interest income on securities is taxable.
Under what head interest on securities is taxed?
Interest on securities is now taxable under ‘Income from other Sources’ if it is not taxable as ‘Business Income under Section 28’.
Is TDS applicable on interest earned on debentures?
Yes, TDS is applicable on interest earned on debentures under Section 193 of the I-T Act.
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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