Here, we shall discuss Tax to be Deducted at source on Interest on Securities as per Section 193 of the Income Tax Act. 

1.     Any person responsible for paying interest on securities to a resident is required to deduct income tax at source at the rates in force. 

2.     Tax is deductible either at the time of credit to the account of the payee or at the time of payment, whichever is earlier. 

3.     For this purpose, credit to any suspense account or interest payable account or any other account by whatever name called shall be deemed to be a credit of such income to the account of the payee.  

4.     Tax is not deductible in respect of interest payable on the following: 

Ø  Interest payable on any security of the Central/State Government. But interest exceeding Rs.10,000/- during a financial year payable on 8% Savings (Taxable) bonds, 2003 is subject to deduction of tax at source. 

Ø  Interest payable on debentures issued by any institution or authority or any public sector company or co-operative society notified by the Central Government. 

Ø  Interest payable on any security owned by the Life Insurance Corporation of India. 

Ø  Interest payable to an individual on debentures which are issued by a company in which public are substantially interested provided that the debentures are listed on a recognised stock exchange in India and the payment is made by an account payee cheque and the aggregate amount of payments to the individual during the financial year does not exceed Rs.5,000. 

Ø  Interest payable to General Insurance Corporation of India or to any of the four companies formed by virtue of schemes framed under section 16(1) of the General Insurance Business (Nationalisation) Act. 

Ø  Interest payable to any other insurer. 

Ø  Interest payable to an individual or HUF resident in India on any debenture issued by a company in which public are substantially interested if the interest payable or total amount of interest payable during the financial year does not exceed Rs.5000 and such interest is paid through an account payee cheque. 

5.     Since the income of funds established for the benefit of Armed Forces is exempt under section 10(23AA), no tax should be deducted at source under section 193 from the income of such funds. [Circular No. 735 dt.30-1-1996]. 

6.     In case of a provident fund whose income is exempt under section 10(25)(ii), income by way of interest on securities of Central and State Governments may be paid to such funds without deduction of tax at source. [Circular No. 741 dt.18-4-1996]. 

7.     In case of deep discount bonds, tax is to be deducted at source at the time of redemption only. For this purpose, the difference between issue price and redemption price is taken as the interest payable. [Circular No.2/2002 dt.15-2-2002]. The deduction of tax is at the time of redemption only irrespective of whether the bond holder has declared income on the bonds on accrual basis year to year or at the time of redemption of the bonds. But, if he has declared income on accrual basis, he can apply for non-deduction of tax or deduction of tax at a lower rate to the Assessing Officer. [Circular No.4/2004 dt.13-5-2004.]  

8.     In case of a resident individual who has been an original subscriber to the deep discount bonds and the difference between issue price and redemption price does not exceed the maximum amount not chargeable to tax, and no tax is payable on his total income, and he has been following accrual method to declare income on the bonds from year to year, such an individual can furnish a declaration in Form 15H (now 15G) for non-deduction of tax at source. [Circular No.4/2004 dt.13-5-2004.]