Section 193 TDS on Securities: Rules, Rates & Exemptions

Section 193 of the Income Tax Act, 1961, regulates the provisions of Tax Deducted at Source (TDS) on interest received from securities. With various recent changes and amendments in the threshold, investors, businesses, and finance professionals need to understand the details of this section.

What is 'Interest on Securities'?

In Section 2(28B) of the Income Tax Act, 'interest on securities' is defined as:

Interest on Central or State Government securities.
Interest on debentures or other security of local authorities, corporations, or companies incorporated under Central, State, or Provincial Acts.

The above general definition includes various financial instruments like government securities, corporate debentures, and municipal securities.

Who Has to Deduct TDS Under Section 193?

Any individual or organization—governments, businesses, and organizations—paying interest on securities to a resident must deduct the TDS. Interestingly, Section 193 is exempted from interest paid to non-residents, which fall under Section 195.

Present TDS Rate and Slabs effective from April 1, 2025

TDS Rate

Normal TDS rate on interest on securities for the year 2025-26 is 10%.
If the payee does not provide a valid PAN, TDS is levied at 20%.

Threshold Limit

No deduction of TDS if the aggregate interest does not exceed ₹10,000 in a financial year.
This increase will ease compliance for small investors.

Example Scenario: If Ms. B invests in State Government Bonds and gets interest of ₹9,500 in FY 2025-26, no TDS shall be deducted since the total interest is below ₹10,000.

Time of TDS Deduction

TDS must be deducted at the choice of:

When interest is credited to payee's account (including suspense accounts).
When interest is paid by cash, cheque, draft, or any other mode.

TDS Deposit Rules

For TDS deductions of March: TDS are required to be deposited by April 30 of the next immediate financial year.
For TDS deduction of remaining months: it needs to be deposited before seven days from the date at the end of the month when TDS was deducted.

Issue of TDS Certificate Form 16A

TDS certificates (Form 16A) to be given by deductors to payees within the following dates: AlmostEqual

Quarter ending June 30: On or before 15th August
Quarter ending September 30: November 15
Quarter ending December 31: February 15
Quarter ending March 31: June 15

Filing TDS Returns (Form 26Q)

Quarterly TDS returns are to be furnished by:

Q1 (April–June): July 31
Q2 (July–September): October 31
Q3 (October–December): January 31
Q4 (January–March): May 31

Exemptions from TDS Under Section 193

Section 193 provides for different exemptions to encourage investments:

TDS is not charged on:

Interest on National Savings Certificate (IV Issue) of 7 years.
National Development Bonds.
Interest on 4.25% National Defence Loan (1968 and 1972) in the hands of individuals.
Interest on 6.5% Gold Bonds (1977) or 7% Gold Bonds (1980) held by resident individuals if condition is that nominal amount does not exceed ₹10,000 in the interest period.
Interest on debentures of resident individuals or Hindu Undivided Family (HUFs) up to a maximum of ₹5,000 received in account payee cheque.
Interest accruing to insurance companies such as LIC or GIC on securities upon which they have exclusive ownership or beneficial interest.

Important Note: The earlier exemption relief on interest on dematerialized securities of a listed company was withdrawn from April 1, 2023; TDS thus now applies on such instruments also.

Example Scenario: If Mr. C gets ₹4,800 as interest on debentures of a listed public company by account payee cheque, no TDS shall be deducted as the amount is less than ₹5,000.

Key Amendments and Updates

Budget 2024-25

Government Bonds TDS: From October 1, 2024, a TDS of 10% shall be levied on all centre and state government securities including SDLs and Floating Rate Savings Bonds.
Withdrawal of Exemption: With effect from April 1, 2023, TDS on interest in dematerialized debentures that are listed.

Budget 2025

Raised Threshold: The threshold for exemption of interest on securities under TDS has been increased to ₹10,000 for a financial year, which eases compliance for small investors.

Consequences of Non-Compliance

Interest on Delayed Payment: Where TDS is deducted but not paid in time, the deductor has to pay 1.5% for every month or portion thereof interest from the date of deduction to the date of deposit.
Disallowance of Expense: Non-deduction or non-deposit of TDS can result in disallowance of the expense in respect thereof under Section 40(a)(ia) for companies.

Claiming TDS Credit

Investors can avail themselves of the credit for the TDS deducted during filing Income Tax Return (ITR) for the financial year in consideration. The interest paid and deducted TDS will be reflected in the Annual Information Statement (AIS) as well as in Form 26AS.

More Refined Details

Nil/Reduced TDS Certificate: Payees can obtain a certificate under Section 197 to be paid interest income without TDS or at a reduced rate at the discretion of the Assessing Officer.
Classification of Income Tax: Interest on securities is charged under the head "Income from Other Sources" unless treated as business income.
Capital Gains Tax: Disposing of securities prior to maturity can attract capital gains tax (short-term or long-term) and TDS on interest.

Example Scenario: If Mrs. D invests ₹2 lakh in 7.18% State Development Loans (SDLs) after October 1, 2024, she shall be getting back ₹14,360 as interest every year. Since this is over ₹10,000, TDS will be deducted at 10% i.e., ₹1,436, and she shall receive ₹12,924. This TDS can be claimed by her while submitting her ITR online, the same being credited to Form 26AS.

Frequently Asked Questions

Whether TDS can be paid on interest on government securities? Yes, w.e.f. 1st October 2024, TDS of 10% is payable on all notified government securities and SDLs.
What if the payee does not give his PAN? In this case, TDS will be deducted at a rate of 20%.
**Are senior citizens exempted? While there is no specific exemption under Section 193, there are more relaxed ceilings for bank/post office interest under Section 194A.
I have below-threshold interest; how do I not get TDS? Keep your total interest on all securities under ₹10,000 in a financial year or give Form 15G/15H (if eligible) to the deductor.

Conclusion

Section 193 charges a 10% TDS on residents on interest on securities received by them, with an exemption limit of ₹10,000 from FY 2025-26. The recent changes have brought additional government securities and listed debentures within the ambit of TDS. Investors are required to deduct, remit, and report TDS on time to escape penalties and receive credit for TDS in return of income.