Under Section 192A of the Income Tax Act, 1961, the TDS rate on premature withdrawal from the Employee Provident Fund (EPF) is 10%. However, there are some exceptions and conditions to be aware of:
Exemption from TDS:
- Total withdrawal amount: No TDS will be deducted if the total amount withdrawn is less than or equal to ₹50,000.
- Specific cases: TDS is also not applicable in certain cases like withdrawal on account of medical treatment, retirement, or unemployment for more than 2 months.
Increased TDS rate:
- PAN not furnished: If the employee Income Tax fails to furnish their Permanent Account Number (PAN) to the deducting agency (usually the EPF trust), the TDS rate will be increased to the maximum marginal rate, which is currently 34.608% (as of December 11, 2023).
Additional points:
- The TDS is deducted at the time of withdrawal from the EPF account.
- The deducted TDS amount can be claimed as a credit while filing the income tax return.
DEDUCTION OF TAX AT SOURCE FROM INTREST ON SECURITIES[SEC.193]
Deduction of Tax at Source (TDS) from Interest on Securities under Section 193 of the Income Tax Act
Section 193 of the Income Tax Act, 1961 deals with the deduction of tax at source (TDS) from interest income on securities. This means that any person who is Income Tax responsible for paying interest on securities to a resident individual is required to deduct tax at a specified rate before making the payment.
Here’s a breakdown of the key points:
Who is responsible for deducting TDS?
- Any person who is liable to pay interest on securities to a resident individual. This includes companies, banks, financial institutions, and government bodies.
What are “securities” under Section 193?
- Securities include:
- Debentures (including non-convertible debentures)
- Bonds
- Units issued by Unit Trust of India
- Securities issued by a local authority
- Zero-coupon bonds
- Any other notified instruments
What is the rate of TDS?
- The general rate of TDS under Section 193 is 10%.
Are there any exemptions from TDS?
- Yes, there are certain exemptions from TDS under Section 193. These include:
- Interest paid on securities Income Tax issued by the Central Government, State Governments, and specified public sector companies.
- Interest paid on securities in Income Tax dematerialized form and listed on a recognized stock exchange.
- Interest paid to a person who has furnished a Form 15G or Form 15H to the deductor, declaring their lower tax liability.
When is the TDS deducted?
- TDS is deducted at the earliest of the following:
- When the interest is credited to the payee’s account.
- When the interest is actually paid.
- When the interest is due for payment.
What are the responsibilities of the deductor?
- Deduct TDS at the prescribed rate.
- Deposit the deducted tax with the government within the prescribed time limit.
- Issue a TDS certificate (Form 16A) to the payee.
What are the consequences of not deducting TDS?
- The person responsible for deducting TDS may be liable to pay interest and penalty for non-compliance.
EXAMPLE
Scenario:
Mr. Ram, a resident of Chennai, India, received interest of Rs. 20,000 on his bonds issued by the Government of Tamil Nadu. The interest is credited to his bank account on June 30th, 2023.
Applicability of TDS under Section 193:
- Section 193 of the Income Tax Act, 1961, requires deduction of tax at source (TDS) on interest on securities.
- This section applies to all residents of India, including Mr. Ram.
- The rate of TDS on interest on securities is generally 10%, but there are exceptions and exemptions.
Calculating the TDS:
- Applicable rate: Since Mr. Ram is a resident of India and has not submitted any Form 15G or 15H to the deductor (Government of Tamil Nadu), the applicable TDS rate is 10%.
- TDS amount: TDS = 10% * Rs. 20,000 = Rs. 2,000.
Deduction and deposit of TDS:
- The Government of Tamil Nadu, as the deductor, will deduct Rs. 2,000 as TDS from the interest Income Tax amount payable to Mr. Ram.
- The deducted amount must be deposited with the government within 7 days from the end of the month in which the deduction was made.
- The deadline for depositing Income Tax TDS in this case is July 7th, 2023.
- The Government of Tamil Nadu will issue a TDS certificate (Form 16A) to Mr. Ram, reflecting the Income Tax deducted amount and other relevant details.
Impact on Mr. Ram’s tax liability:
- Mr. Ram will receive Rs. 18,000 (Rs. 20,000 – Rs. 2,000) as net interest income.
- He will have to include the gross interest income of Rs. 20,000 in his income tax return.
- However, he can claim credit for the deducted TDS of Rs. 2,000 against his tax liability.
FAQ QUESTIONS
- Who is liable to deduct TDS on interest income from securities?
Any person responsible for paying interest on securities to a resident is liable to deduct tax at source (TDS) under Section 193 of the Income Tax Act. This includes:
- Banks and other financial institutions
- Companies issuing bonds and debentures
- Government bodies issuing securities
- Any other person responsible for making such payments
- What type of securities are covered under Section 193?
The following types of securities are covered under Section 193:
- Bonds
- Debentures
- Government securities
- Units of mutual funds
- Interest on deposits with banks and other financial institutions
- Any other instrument notified by the Central Board of Direct Taxes (CBDT)
- What is the rate of TDS on interest income from securities?
The rate of TDS on interest income from securities depends on the type of security and the PAN status of the recipient. The current rates for FY 2023-24 are:
- For individuals and HUFs:
- PAN provided: 10%
- PAN not provided: 20% or higher
- For companies and other entities:
- PAN provided: 22%
- PAN not provided: 20% or higher
- When is TDS deducted from interest on securities?
TDS is typically deducted at the time of crediting or payment of the interest income to Income Tax the recipient.
- What are the consequences of not deducting TDS or depositing it with the government?
Failure to deduct TDS or deposit it with the government can attract penalties and interest charges.
- How can I claim a refund of excess TDS deducted?
If you have paid TDS in excess of your actual tax liability, you can Income Tax claim a refund by filing your income tax return and claiming the deduction for TDS paid.
- Are there any situations where TDS is not required to be deducted on interest income from securities?
Yes, there are certain exceptions where TDS is not required to be deducted. These include:
- Interest income on notified Income Tax bonds issued by public sector companies.
- Interest income on notified infrastructure bonds.
- Interest income on deposits with banks and other financial institutions below a certain threshold limit.
- Interest income earned by trusts or registered charitable institutions.
- Where can I find more information about TDS on interest income from securities?
You can find more information about TDS on interest income from securities on the following websites:
- What are some additional points to remember about TDS on interest income from securities?
- The deductor is responsible for obtaining the PAN of the recipient and deducting tax at the appropriate rate.
- The deductor must issue a TDS certificate (Form 16A) to the recipient, which contains details of the TDS deducted.
- The recipient must file their income tax return and claim deduction for the TDS paid.
CASE LAWS
Section 193 of the Income Tax Act mandates that tax be deducted at source (TDS) on interest earned on certain securities issued by companies. This article examines case law relevant to this provision, addressing important aspects like applicability, exceptions, and consequences of non-compliance.
Applicability of TDS on Interest on Securities:
- CIT v. Bombay Dyeing & Mfg. Co. Ltd. (1959): This case established that TDS applies even if the company issuing the securities incurs a loss.
- CIT v. Hindustan Motors Ltd. (1968): The court held that interest on debentures issued by a company even before its incorporation is subject to TDS.
- CIT v. National Organic Chemical Industries Ltd. (1993): TDS was deemed applicable on interest paid on “zero coupon bonds.”
Exceptions to TDS on Interest on Securities:
- Securities listed on recognized stock exchanges: No TDS is required on interest paid on dematerialized securities listed on recognized stock exchanges in India. This Income Tax exemption applies to listed shares, debentures, and bonds. (Effective from April 1, 2023, TDS is also applicable on Non-convertible Debentures (NCDs) listed on recognized stock exchanges.)
- Specific exemptions granted by the Central Government: The government may notify specific securities exempt from TDS under Section 193.
- Interest below a certain threshold: TDS is not required if the interest paid to a resident individual (excluding senior citizens) in a financial year does not exceed Rs. 5,000.
Consequences of Non-Compliance:
- Penalty: Failure to deduct TDS or deposit it with the government attract a penalty under Section 201 of the Income Tax Act.
- Interest: Interest is levied at 1.5% per month or part of a month on the unpaid tax amount from the due date of deposit.
- Prosecution: In severe cases, the defaulter may face legal prosecution.
Important Case Laws Regarding Exceptions and Consequences:
- CIT v. Associated Cement Cos. Ltd. (1968): The court ruled that the exemption for listed securities applies only to dematerialized securities.
- CIT v. Bharat Heavy Electricals Ltd. (1988): The court clarified that failure to deduct TDS on exempt securities does not attract any penalty.
- CIT v. Indian Aluminium Co. Ltd. (1991): The court held that the government has the power to withdraw previously granted exemptions under Section 193.