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 1988-89 - Income Tax - 519/1988

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 1988-89 Circular No. 519 Dated 10/8/1988 To All Accountants-General and Comptrollers, Accountant-General, Posts and Telegraphs, Simla, Deputy Accountant-General, Posts and Telegraphs, Calcutta, Comptroller and Auditor-General of India, New Delhi, The Reserve Bank of India, Central Office, Bombay. Sir, Subject: 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 1988-89. I am directed to invite a reference to this Department's Circular No. 486 [F. No. 275/41/87-IT(B)] dated June 1, 1987 (printed at [1987] 166 ITR (St.) 130), on the above subject wherein you were requested to issue 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 1987-88. Reference is also invited to this Department's Circular No. 506 [F. No. 275/21/88-IT(B)], dated February 22, 1988 (printed at [1988] 171 ITR (St.) 2, wherein the fact of levy of surcharge was intimated to you. 2. There is no change in the basic rates of tax for the financial year 1988-89 in so far as they relate to deduction of tax at source from payment of "Interest on Government securities". However, the amount of tax deducted as per the rates given in the enclosed draft circular shall be increased: (i) by a surcharge for the purpose of the Union at 5% of such income-tax in the case of a resident Indian; and (ii) by a surcharge at 5% of such income-tax in the case of a domestic company. 3. I am enclosing a copy of the draft circular letter setting out the rates at which income-tax should be deducted from such payments after March 31, 1988. You may please issue the circular on the basis of this draft to all Treasury Officers and Sub-Treasury Officers, banks, etc., under your control individually, with a view to ensuring that the provisions of the Act are strictly adhered to by them. 4. According to the provisions of section 203A of the Income-tax Act, 1961, 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 (printed at [1988] 169 ITR (St.) 54). If a person fails to comply with the provisions of section 203A, he shall on an order passed by the Income-tax Officer pay, by way of penalty, a sum which may extend to Rs. 5,000. In this connection, attention is also invited to the provisions of section 206 of the Income-tax Act, 1961, which reads as under: "206. 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 foregoing provisions of this Chapter shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed." 6. According to the provisions of section 200 of the Income-tax Act, 1961, 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, 1961, as substituted by the Direct Tax Laws (Amendment) Act, 1987, 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 rigourous imprisonment for a term which shall be between three months and seven years and with fine. Draft Circular to All Treasury Officers, etc. 1. I am to invite your attention to this office letter regarding deduction of income-tax from interest on Government securities during the financial year 1987-88. 2. Income-tax is to be deducted during the financial year 1988-89, from the entire amount of interest on securities at the following rates, namely:- Surcharge on income-tax The amount of tax deducted as per the rates given above shall be increased :— (i) by a surcharge for the purpose of the Union at 5% of such income-tax in the case of resident Indians; and (ii) by a surcharge at 5% of such income-tax in the case of a domestic company. 3. The term "domestic company" means an Indian company or any other company which, in respect of its income liable to income-tax under the Income-tax Act, 1961, for the assessment year commencing on the 1st day of April, 1988, has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income in accordance with the provisions of section 194 of the Income-tax Act. 4. In making payment or crediting interest on Government securities after April 1, 1988, you are requested to deduct income-tax at the rates specified above, except in cases where an exemption or abatement certificate granted by an Income-tax Officer/Assessing Officer under sub-section (1) of section 197 of the Income-tax Act, 1961, is produced. In this connection, the following points should be kept in view: (i) exemption or abatement certificates issued before April 1, 1988, authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1989; (ii) where a certificate is issued by the Income-tax Officer/Assessing Officer on or after April 1, 1988, authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein; (iii) no tax should be deducted in cases in which, from a certificate issued by the Income-tax Officer/Assessing Officer or otherwise, you are satisfied that the payee is a person exempt from payment of income-tax under section 10 and 13A of the Income-tax Act, 1961; (iv) no tax should be deducted from interest payable on 7 year National Savings Certificates (IV Issue), National Development Bonds, etc., which have been specifically exempted from the requirement of tax deduction at source under the proviso to section 193 or on the interest payable on such debentures/securities/bonds as have been specified by the Central Government by notification in the Official Gazette under the proviso to section 193; (v) no tax should be deducted from any interest payable on any other security of the Central or State Government where the security is held by a resident individual, and the holder makes a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner as provided in section 197A(1) of the Income-tax Act to the effect that his estimated total income of the previous year in which such income is to be included in computing his total income will be less than the minimum liable to income-tax. A copy of the Declaration Form prescribed under the provisions of section 197A of the Income-tax Act is at Annexure II. A copy of such declaration should be forwarded by you on or before the seventh day of the month next following the month in which the declaration is furnished to you to the Commissioner of Income-tax concerned, as provided in rule 29C of the Income-tax Rules, 1962; (vi) no tax should be deducted from any sum payable in respect of any security owned by a corporation established by or under a Central Act which under any law for the time being in force is exempt from income-tax on its income. Payments made to Life Insurance Corporation and Unit Trust of India are exempt from the requirement of tax deduction at source by their respective Acts. (vii) under section 288B of the Income-tax Act, fractions of one rupee contained in the amount of tax will have to be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee. Hence, the amount of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provisions of the Act. 5. In case of any doubt, the Assessing Officer or the local Public Relations Officer of the Income-tax Department should be consulted before making deduction from interest on Government securities. 6. The copies of this circular will be available with the Director of Inspection (Research, Statistics and Public Relations), 6th Floor, Mayur Bhawan, Connaught Circle, New Delhi-110 001. ANNEXURE-I EXTRACT FROM THE FINANCE ACT, 1988, PART III OF THE FIRST SCHEDULE Paragraph A Sub-paragraph-I In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-paragraph II of this Paragraph or any other Paragraph of this part applies:- Rates of income-tax ( 1 ) Where the total income does not exceed Rs. 18,000 Nil; ( 2 ) Where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000 25 per cent of the amount by which the total income exceeds Rs. 18,000; ( 3 ) Where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000 Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000; ( 4 ) Where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000 Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000; ( 5 ) Where the total income exceeds Rs.1,00,000 Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000. Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Sub-paragraph shall, in the case of every person having a total income exceeding fifty thousand rupees, be increased by a surcharge for purposes of the Union calculated at the rate of five per cent. of such income-tax: Provided that no such surcharge shall be payable by a non-resident. Annexure II Form No. 15F [ See Rule 29C(1)] Declaration under section 197A(1) of the Income-tax Act, 1961, to be made by an individual claiming receipt of "interest on securities" without deduction of tax I..............................................................................................................................., son/daughter/wife of...........................................................resident of† ........................................................... do hereby declare :— 1. that the securities, particulars of which are given below, stand in my name and are beneficially owned by me, and the interest therefrom is not includible in the total income of any other person under sections 60 to 64 of the Income-tax Act, 1961 : Description of securities Number of securities Dates of securities Amount of securities Date(s) on which the securities were acquired by the declarant 2. that my present occupation is.............. 3. that my estimated total income including the interest on securities referred to in Paragraph 1 above, computed in accordance with the provisions of the Income-tax Act, 1961 for the previous year ending on........ relevant to the assessment year 19.... 19.... will be less than the minimum liable to income-tax; 4. *"that I have not been assessed to income-tax at any time in the past but I fall within the jurisdiction of the Chief Commissioner or Commissioner of Income-tax........ or that I was last assessed to income-tax for assessment year 19.....19....... by the ITO................ Circle/Ward/District and the permanent account number allotted to me is.......... 5. that I am resident in India within the meaning of section 6 of the Income-tax Act, 1961. .......................................................... Signature of the declarant Verification I, ..................................................., do hereby declare that to the best of my knowledge and belief what is stated above is correct, complete and is truly stated. Verified today, the...........................................................day of..................19......... ........................................................... Signature of Declarant Place .......... Notes : 1. †Give complete postal address. 2. The Declaration should be furnished in duplicate. 3. *Delete, whichever is not applicable. 4. Before signing the verification, the Declarant should satisfy himself that the information furnished in the declaration is true, correct and complete in all respects. Any person making a false statement in the declaration shall be liable to prosecution under section 277 of the Income-tax Act, 1961, and on conviction be punishable :— ( i ) in a case where tax sought to be evaded exceeds one lakh rupees, with rigorous imprisonment which shall not be less than six months but which may extend to seven years and with fine; ( ii ) in any other case, with rigorous imprisonment which shall not be less than three months but which may extend to three years and with fine. [for use by the person to whom the declaration is furnished] 1. Name and address of the person responsible for paying the interest on securities mentioned in Paragraph 1 of the Declaration. 2. Date on which the Declaration was furnished by the Declarant. 3. Period for which interest is paid. 4. Amount of interest. 5. Date on which interest is paid. Forwarded to the Commissioner of Income-tax,......... ........................................................... Signature of the person Place............... responsible for paying Date................ the interest on securities.