What changed
RBI issued clarifications from CBDT on TDS application for 8% Savings Bonds, 2003. Key points: TDS applies to all bonds (new or existing) from June 1, 2007, if interest exceeds ₹10,000/year. For cumulative bonds, TDS is deducted on interest credited annually, not just at maturity. Charitable trusts need a certificate under Section 197 for lower or nil TDS.
What it means for you
Banks must deduct TDS on interest for all 8% Savings Bond holders, including existing ones, if interest exceeds ₹10,000 per financial year. For cumulative bonds, TDS applies on yearly credited interest, not just at maturity. This increases compliance burden for banks managing these bonds, requiring careful tracking of interest accruals and thresholds.
What you must do
- Update systems to deduct TDS on 8% Savings Bond interest exceeding ₹10,000/year for all holders, regardless of investment date.
- For cumulative bonds, ensure TDS is deducted on interest credited annually, not deferred to maturity.
- Verify TDS rates: 20% for companies (1.6.2007-31.3.2008), 20% for others (1.6.2007-31.3.2008), 20% for companies (from 1.4.2008), 10% for others (from 1.4.2008), with surcharge and cess. Non-residents: 40% (companies) or 30% (others) regardless of period.
- Accept Form 15G/15H from eligible individuals/HUFs only if their estimated total income is nil and specified income limits are met.
- Require a certificate under Section 197 from charitable trusts for lower or nil TDS; do not assume automatic exemption.
Who it affects
Banks handling 8% Savings (Taxable) Bonds, 2003, State Bank of India and associate banks, Nationalised banks, AXIS Bank, HDFC Bank, ICICI Bank, IDBI Bank, SHCIL (Stock Holding Corporation of India Limited), All bond holders (individuals, HUFs, companies, trusts)
Does TDS apply to bonds purchased before June 1, 2007?
Yes, TDS applies to all 8% Savings Bonds, 2003, regardless of purchase date. The trigger is interest credited or paid on or after June 1, 2007, exceeding ₹10,000 in a financial year.
How is TDS handled for cumulative bonds where interest is paid at maturity?
For cumulative bonds, if interest is credited annually, TDS must be deducted each year when credited interest exceeds ₹10,000. It is not deferred to maturity.
Can charitable trusts automatically claim TDS exemption?
No, charitable trusts must obtain a certificate from the Assessing Officer under Section 197 of the Income Tax Act for lower or nil TDS. No automatic exemption is allowed.