Budget to bring listed bonds under TDS from April

As announced in the budget, there will be a TDS, or tax deducted at source, of 10% on interest payments on listed bonds (debentures) from April 1. The move is expected to curb under-reporting of interest income by taxpayers.

At present, under section 193 of the Income Tax (IT) Act, listed bonds are exempt from TDS. Unlisted bonds are already subject to TDS under the IT Act, says Naveen Wadhwa, deputy general manager, Taxmann.

So, will TDS be applicable on interest payments from all bonds, irrespective of the issuer? No, section 193 refers to “any security issued by a company”.

According to Rajshree Sabnavis, founder of boutique tax firm Rajshree Sabnavis & Associates, TDS will be applicable only in case of bonds issued by companies. Government bonds including Sovereign Gold Bonds will be exempted from TDS provision.

The interest earned on the bonds is taxed at your relevant income tax slab rate. What if you fall in the tax-exempt category or are subject to a lower income tax rate (less than 10%)? Can you submit Form 15G or Form 15H to ensure that no TDS is deducted on your interest income – as you do for bank fixed deposits? “The form has to be submitted to the entity responsible for paying the interest, which is the bond issuing company,” says Sabnavis.

Form 15G has to be submitted if your age is less than 60 years and Form 15H has to be submitted if your age is 60 or more. She adds, “We will have to wait for more details to see how this will work for bondholders,” says Sabnavis.

Finally, note that TDS does not affect your tax liability, but it can affect your near-term cash flow. If you have been depending on the interest income from bonds for your running expenses, you may have to make some adjustments to account for the amount deducted at source.