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The 2-Minute Summary
When a company pays interest on its debentures or bonds to investors, it must deduct TDS before making the payment. This is one of the older TDS provisions, covering the organised debt market. The threshold is Rs. 10,000 in aggregate interest during the Tax Year. If the total interest paid to a single person stays below this, no TDS is required. The most important practical point: most government securities are exempt from TDS. If you hold G-Secs, State Government bonds, or tax-free bonds issued by PSUs, the interest is paid without TDS deduction.
Example: A company pays Rs. 15,000 as debenture interest to Rahul. Since Rs. 15,000 exceeds Rs. 10,000, TDS applies at rates in force before payment. If the same company had paid only Rs. 8,000, no TDS would apply.
Under Income Tax Act 1961: Section 193 of the Income Tax Act 1961. Now Section 393(1) Sl. No. 5(i) under the 2025 Act. Exemptions and threshold unchanged.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 5(i) of Income Tax Act 2025 |
| Old Act Reference | Section 193 of Income Tax Act 1961 |
| Who Deducts | Any person paying interest on securities |
| TDS Rate | Rates in force (as per Finance Act for the Tax Year) |
| Threshold | Rs. 10,000 aggregate in a Tax Year |
| When to Deduct | At credit or payment, whichever is earlier |
| Form for TDS Certificate | Form 16A |
What are Securities for This Purpose
The term ‘securities’ for this section means debentures, bonds, and similar debt instruments issued by companies and other entities. It does not cover Fixed Deposits or savings account interest (those fall under Sl. 5(ii) and 5(iii)).
- Listed debentures of companies
- Non-convertible debentures (NCDs)
- Bonds issued by companies or PSUs
- Certain government securities that are taxable (such as 8% Savings Bonds 2003, 7.75% Savings Bonds 2018, and Floating Rate Savings Bonds 2020)
Key Exemptions: When TDS Does NOT Apply
Section 393(4) Table lists several situations where TDS is not deducted even if interest on securities exceeds Rs. 10,000:
| Exemption | Condition |
| National Development Bonds | Interest on these bonds is always exempt from TDS |
| Central and State Government securities | Exempt unless specifically listed as taxable (8% SB 2003, 7.75% SB 2018, FRSB 2020 are taxable) |
| Notified debentures by Central Government | Specific institutions notified by the government |
| LIC of India | Interest on securities owned by LIC or in which LIC has full beneficial interest |
| GIC and four subsidiary companies | Interest on their holdings |
| Any other insurer | Interest on securities they own or hold beneficial interest in |
| Business trust (SPV) | As per Schedule V arrangements |
Example: LIC holds Rs. 10 crore of a company’s debentures. The company pays Rs. 80 lakh as interest to LIC. Despite the large amount, no TDS is deducted since LIC is specifically exempt.
Example: Sunita holds 7.75% Savings Bonds 2018 issued by the Government of India. These are specifically listed as taxable. Interest above Rs. 10,000 attracts TDS. Compare this to her 7% tax-free PSU bonds, where no TDS applies.
Timing of Deduction
TDS must be deducted at the time of credit of interest to the payee’s account or at the time of payment in cash or by cheque, whichever comes first. For listed debentures where interest is paid through a register of debenture holders, the credit to the account typically happens on the interest record date. TDS is due at that point even if the physical warrant is dispatched later.
Practical Compliance Checklist
- If you are a company paying debenture interest: Check whether the payee is an exempt entity (LIC, GIC, insurer) before deducting TDS. For exempt payees, no TDS is required regardless of the amount.
- If you hold government securities: Identify whether your specific security is on the taxable list (8% SB 2003, 7.75% SB 2018, FRSB 2020). If not on the list, interest is paid without TDS.
- If you invest in corporate NCDs or bonds: TDS will be deducted if your annual interest from that issuer exceeds Rs. 10,000. Claim it as TDS credit in your ITR using Form 16A.
- If you apply for a lower or nil TDS certificate under Section 395: You can receive debenture interest without TDS deduction or at a lower rate if your total income justifies it.
Interest on securities is the foundation of India’s corporate bond market. The TDS framework here is designed to keep high-volume institutional investors like LIC and insurers outside the TDS net, while ensuring individual retail investors have their interest income tracked by the government.
