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

The Indian Income Tax system requires taxes to be collected at the source of income. One important provision under this is Section 193 of the Income Tax Act, which deals specifically with the deduction of TDS (Tax Deducted at Source) on interest on securities.

If you are investing in government bonds, debentures, or corporate securities, or if you're a company issuing them, understanding Section 193 is critical. It ensures compliance and helps avoid penalties.

Let’s dive into what Section 193 of the Income Tax Act is all about, including TDS rates, exemptions, thresholds, and how it applies in different scenarios.

What Is Section 193 of the Income Tax Act?

Section 193 of the Income Tax Act, 1961 mandates that TDS be deducted on interest income arising from securities. This means that if a company or government pays interest to an investor on securities (like bonds or debentures), they must deduct tax at source before paying the interest.

This section applies to both listed and unlisted securities, provided certain conditions are met.

Scope of Section 193

The section applies to any person (other than an individual or HUF not subject to tax audit) who is responsible for paying interest on:

• Government securities
• Debentures issued by companies
• Bonds issued by public sector companies or corporations

So, whenever interest on securities in income tax is being paid, TDS under Section 193 of the Income Tax Act must be considered.

TDS Rate Under Section 193

• The standard TDS rate is 10% on interest paid
• If PAN is not furnished by the recipient, the rate rises to 20%
• No surcharge or cess is added—just a flat rate

The recipient’s PAN must be quoted correctly to avoid higher deductions.

Threshold Limits for TDS under Section 193

There are some important TDS thresholds under Section 193 where no deduction is required:

1. Interest on debentures issued by listed companies to resident individuals/HUFs is exempt up to ₹5,000 per financial year if paid via an account payee cheque
2. No TDS on interest on certain government securities
3. Interest paid to banks, LIC, UTI, mutual funds, and insurers is usually exempt
4. If the investor submits Form 15G/15H, TDS may not be deducted

So, while Section 193 provides broad coverage, it also offers reasonable exemptions for small investors. "

TDS Under Section 193 of the Income Tax Act – With Example

Let’s say XYZ Ltd issues non-convertible debentures and pays interest of ₹10,000 per annum to Mr. A, a resident individual.

• Since the interest exceeds ₹5,000, TDS @ 10% = ₹1,000 will be deducted
• If Mr. A had submitted Form 15G, no TDS would have been required
• If Mr. A did not provide a PAN, the company would deduct TDS at 20%

Amendment in Section 193 of the Income Tax Act

Over the years, amendments in Section 193 have expanded exemptions and clarified threshold limits.

Notably, earlier TDS applied even for smaller amounts, but now exemptions are allowed up to ₹5,000 for certain instruments, and payment methods like account payee cheques are prescribed to ensure traceability.

To stay current, you can refer to the latest section 193 of the Income Tax Act PDF available on the official Income Tax India portal. "

What Is Section 193 of the Income Tax Act?

To recap simply, Section 193 of the Income Tax Act 1961:

• Applies to interest on securities (excluding interest on securities exempt under Section 10)
• Requires TDS deduction @ 10%
• Allows exemptions for small investors
• Includes debentures, bonds, and government securities

If you’re unsure about applicability for a specific financial year, check resources like:

• Section 193 of the Income Tax Act 2017-18
• Section 193 of the Income Tax Act 2020-21
• Section 193 of the Income Tax Act 2019-20
• Section 193 of the Income Tax Act, India (Taxguru)

These documents often reflect updates or clarifications issued by the CBDT.

Comparison with Other TDS Sections

• Section 194A – TDS on interest other than securities (like fixed deposits)
• Section 192 – TDS on salary income
• Section 194 – TDS on dividend payments

Each section addresses a unique income source. For interest on securities, Section 193 is the applicable TDS rule.

How to File TDS Under Section 193?

1. Deduct TDS at the time of payment or credit, whichever is earlier
2. Deposit TDS to the government by the 7th of the next month
3. File a quarterly TDS return in Form 26Q
4. Issue a TDS certificate in Form 16A to the payee

Non-compliance can result in penalties, interest, and disallowance of expenses in your ITR.

Final Thoughts

Section 193 of the Income Tax Act plays a vital role in regulating TDS on interest from securities. For investors, it ensures pre-paid tax liability. For issuers, it ensures legal compliance and helps avoid penalties.

Let’s quickly recap:

• Applies to interest paid on securities like bonds, debentures, and government instruments
• TDS is deducted @ @10% (20% if PAN not available)
• There are thresholds and exemptions to protect small investors
• Applicable to both public and private sector entities
• Updated regularly with changes in TDS rules and notifications

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