What changed
The Government of India provided clarifications on TDS applicability for 8% Savings (Taxable) Bonds, 2003. TDS is effective from June 1, 2007, and applies to all bondholders, including existing ones, if annual interest exceeds Rs. 10,000. Tax must be deducted when interest is credited or paid, not deferred to maturity.
What it means for you
Banks and designated branches must deduct TDS on interest for these bonds from June 1, 2007, irrespective of when the bond was purchased. For cumulative interest schemes, TDS is due on interest credited or paid during the year, not only at maturity. Form 16A must be issued to depositors where TDS is applied.
What you must do
- Update systems to deduct TDS on interest exceeding Rs. 10,000 per financial year for all bondholders from June 1, 2007.
- Issue Form 16A to depositors for any TDS deducted on interest credited or paid.
- Instruct designated branches to apply TDS on interest credited or paid, not just at maturity, for cumulative scheme holders.
- Ensure compliance for existing bondholders as date of investment is irrelevant for TDS applicability.
Who it affects
State Bank of India and 17 nationalised banks, ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank, Stock Holding Corporation of India (SHCIL), Designated branches operating the 8% Savings Bonds scheme, All bondholders of 8% Savings (Taxable) Bonds, 2003
Does TDS apply to bondholders who invested before June 1, 2007?
Yes, TDS applies to all bondholders, including existing ones, if interest credited or paid on or after June 1, 2007 exceeds Rs. 10,000 for the financial year.
When is TDS deducted for cumulative interest bonds?
TDS is deducted when interest is credited or paid, whichever is earlier, not only at maturity. This applies even if the bondholder uses mercantile accounting.
Will Form 16A be issued for TDS on cumulative interest?
Yes, Form 16A must be issued to the depositor wherever TDS on interest has been made, including for cumulative interest bonds.