Deduction of tax at source-Section 193 read with section 197(1)/(2) of the Income-tax Act, 1961-Interest on Government securities-Rates of tax applicable during the year 1989-90 - Income Tax - 543/1989

Deduction of tax at source-Section 193 read with section 197(1)/(2) of the Income-tax Act, 1961-Interest on Government securities-Rates of tax applicable during the year 1989-90 Circular No. 543 Dated 31/8/1989 Reference is invited to this Department's Circular No. 519 [F. No. 275/63/88-IT(B)], dated 10th August, 1988 (printed at [1988] 173 ITR (St.) 58), on the above subject wherein a request was made for issuing necessary instructions, to all the Treasury Officers, etc., for making deduction of income-tax at source from the payment of interest on Government securities for the financial year 1988-89. 2. There is no change in the basic rates of tax for the financial year 1989-90 in so far as they relate to deduction of tax at source from payments of interest on Government securities. However, the Finance Act, 1989, has brought about some important changes in the provisions of section 193 of the Income-tax Act relating to deduction of tax at source from income by way of interest on securities. The changes are: (a) In order to prevent the postponement of liability to deduct tax and payment to the credit of the Central Government, the Finance Act, 1989, has amended section 193 whereby tax will be deducted at source either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier. (b) By an Explanation inserted in section 193, it has been clarified that for the purpose of the said section where any income by way of interest on securities is credited to any account whether called "Interest Payable Account" or "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such credit shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall accordingly apply. (c) By amending clause (v)(b) of the proviso to section 193, the monetary ceiling of Rs. 1,000 mentioned therein has been increased to Rs. 2,500. Accordingly, tax will not be deducted at source from any interest payable to a resident individual on debentures issued by a company in which the public are substantially interested, if the interest is paid by the company by an account payee cheque and the amount of such interest or, as the case may be, the aggregate amount of such interest paid or likely to be paid during the financial year by the company to such an individual does not exceed Rs. 2,500. The aforesaid amendments are effective from June 1, 1989. Besides, the Finance Act, 1989, has increased the levy of surcharge on the total income exceeding Rs. 50,000 from 5% to 8% in the case of resident persons and domestic companies. Therefore, the amount of tax deducted as per the rates given in the enclosed draft circular shall be increased: (i) by a surcharge for purpose of the Union at 8% of such income-tax in the case of a resident person; (ii) by a surcharge of 8% of such income-tax in the case of domestic company. 3. A copy of the draft circular letter setting out the rates at which income-tax should be deducted from such payments after 31st March, 1989, is enclosed. On the basis of this draft, a circular may be issued to all Treasury Officers and Sub-Treasury Officers, banks, etc., under your control with a view to ensuring that the provisions of the Income-tax Act are strictly adhered to by the tax deductor. 4. In this connection, attention is invited to the provisions of sections 200, 203, 203A and 206 of the Income-tax Act, the sum and substance of which are as under: (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. S.O. 937(E), dated October 20, 1988*, old rule 31 of the Income-tax Rules, 1962, has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Board's Circular No. 529 [F. No. 275/3/89-IT(B)], dated February 13, 1989**. If a person fails to furnish a certificate as required by section 203, he shall, on an order passed by the income-tax authority, under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues. (b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the challans, TDS-certificates, periodical returns, etc. Detailed instructions in this regard are available in this Department's Circular No. 497 [F. No. 275/118/87-IT(B)], dated October 9, 1987+. If a person fails to comply with the provisions of section 203A, he shall, on an order passed by the Assessing Officer under section 272BB, pay, by way of penalty, a sum which may extend to Rs. 5,000. (c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act, shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 31st May following the financial year to the prescribed income-tax authority, the annual return of deduction of tax under section 193 from "Interest on securities" in Form No. 25 prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS Certificate issued to the assessees should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority, under section 272A, pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees during which the failure continues. (d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 193 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government, the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine. (Sd.) B.E. Alexander, Under Secretary, Central Board of Direct Taxes. * See [1988] 174 ITR (St.) 25. ** See [1989] 176 ITR (St.) 239. + See [1988] 169 ITR (St.) 54.