Complete Guide to TDS on Interest on Securities (Section 193) – DisyTax

TDS on interest on securities is governed by Section 193 of the Income Tax Act, 1961. It mandates deduction of tax at source by payers when paying interest on securities to resident recipients. This article provides a comprehensive explanation of Section 193, its scope, exemptions, threshold limits, forms, and practical examples.

What is Section 193?

Section 193 mandates that any person responsible for paying interest on securities to a resident must deduct tax at source before making the payment. This ensures advance tax collection by the government.

Applicability of TDS under Section 193

• Applicable only to interest paid on securities like debentures, bonds, and government securities.
• Applies only to residents. For non-residents, Section 195 applies.
• Includes corporate bonds and certain RBI savings bonds.

Rate of TDS under Section 193

The rate of TDS is 10% if PAN is provided. In the absence of PAN, TDS is deducted at 20% as per Section 206AA.

Threshold Limits

• No TDS if interest does not exceed ₹5,000 in a financial year in case of listed debentures paid to individuals via account payee cheque.
• No threshold in other cases – even ₹1 interest is liable to TDS.

Exemptions from TDS under Section 193

• Interest on Central Government securities and NSCs.
• Interest on bonds issued by institutions notified by the government.
• Interest on 7.75% RBI Savings (Taxable) Bonds.

TDS Compliance Requirements

• Deduct TDS at time of credit or payment, whichever is earlier.
• Deposit TDS with the government by the 7th of next month.
• File TDS returns in Form 26Q.
• Issue Form 16A to deductees.

Form 15G/15H Declarations

Eligible individuals can submit Form 15G (below 60 years) or Form 15H (senior citizens) if their total income is below taxable limit. In such cases, the deductor is not required to deduct TDS.

Example

Common Errors and Solutions

• Error: Deducting TDS on government securities → Solution: Verify exemption list before deduction.
• Error: No PAN → Solution: Always collect valid PAN to avoid 20% deduction.
• Error: Delay in TDS deposit → Solution: Set automated reminders or use compliance tools.
• Error: Missing Form 26Q filing → Solution: Schedule quarterly returns in advance.