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

Have you ever received interest from securities only to find a portion deducted? Section 193 of the Income-tax Act, 1961 (the Act), is the reason. It deals with tax deducted at source for interest on securities. In this article, we will discuss in detail the provisions of Section 193 of the Act focusing on the following:

• Introduction to Section 193
• What is Interest on securities
• Applicable TDS rate on interest on securities
• How TDS is deduction under section 193
• Exemptions under section 193
• TDS Return Filing
• Due date for TDS deposit
• Penalties for delay in making TDS payments
• TDS Certificate Issuance date

Budget 2025 update:

Under section 193, TDS is not deductible for interest upto Rs. 10,000.

What is Section 193?

Section 193 of the Income Tax Act deals with TDS on interest on securities. It provides that any person responsible for paying interest on securities is required to deduct tax at the prescribed rates. 

What is Interest on Securities?

According to Section 2(28B), interest on securities refers to any interest in security (either issued by the state or central government) and a debenture or securities interest (issued by a local authority established by a state, central or provisional act, or a corporation). So, any income from interest on securities will attract TDS, according to Section 193.

Interest on Securities TDS Rate

As per section 193, the deductor must deduct the TDS at 10%. However, if the deductee does not provide his PAN, it will be deducted at the rate of 20%.

Who Should Deduct the Tax?

Any person, being a resident or non-resident, who has to pay interest on securities to any resident must deduct tax as per this section.

Example of How TDS is Deducted as Per Section 193

Let’s understand TDS deduction as per Section 193 of the Income Tax through an example:

Let’s assume A invested Rs. 5 lakh in debentures of a company with an interest rate of 8% annually. A will earn Rs. 40,000 as annual interest (5 lakh*8%). According to Section 193, the company must deduct TDS as per the applicable rate (which is 10% at present) before depositing A’s interest in their account.  

A’s income after TDS will be Rs. 36,000 (40,000 - (40,000*10%)). The company will deduct Rs. 4,000 as TDS, and the remaining Rs. 36,000 will be given to A.

Exemptions Under Section 193

Here are some exemptions to Section 193:

• If the resident holds a national defence bond with an interest rate of 4.25%.
• Any national defence bonds issued in 1968 or 1972 with a 4.25% interest rate.
• Payable loan interest for national defence.
• A 7-year national savings certificate where interest is payable.
• Debentures interest issued by a company where the public is interested only if the sum of interest is limited to Rs. 5000. Besides, the company must deposit the interest on an account payee cheque (applicable for HUF, resident, or resident individual).
• Any central or state government unpaid interest on security if the claim is a max of Rs. 10,000 for a financial year.
• Certain notified debentures issued by any authority/institution, cooperative organisation, or public sector company are subjected to interest payments.
• Companies established under the General Insurance Business Act or any other insurer will be entitled to interest.
• Interest in dematerialised security issued by any company if the security is listed on any recognised stock exchange.
• 6.5% gold bonds from 1977 or 7% gold bonds from 1980 are owned by a resident individual whose nominal value does not surpass Rs. 10,000 at any point throughout the interest-bearing period.

TDS Return Filing

The deductor is required to file the TDS under Section 193 within a specified timeframe. This return should have the following information included:

• Deductor’s name and PAN details
• Payee’s name and PAN details
• TDS amount
• Other relevant information

Due Date for TDS Deposit

Let’s look at the TDS deposit due date with the government:

Penalties if Delayed TDS Under Section 193

Listed below are the penalties for any delayed TDS payments under Section 193:

Any person, as per section 201, responsible for deducting TDS does not deduct, or if deducts but fails to pay the complete or any part of TDS to the government, then the person will be liable to pay interest at the following rates:

• Interest will be charged at 1% for every month or part of the month on the tax amount from the date the tax was supposed to be deducted to the date the tax was deducted.
• Interest will be charged at 1.5% for every month or part of the month on the tax amount from the date when the tax was deducted to the date when the tax is paid to the government.

Simply put, 1% interest is charged if the deduction is delayed and 1.5% for a payment delay to the government after the deduction.

TDS Certificate Issuance Date

A TDS certificate is issued by the person responsible for deducting the same. They must issue Form 16A within the listed time frame:

• 1st quarter (April - June) - August 15
• 2nd quarter (July - September) - November 15
• 3rd quarter (October - December) - February 15
• 4th quarter (January - March) - June 15