INCOME TAX

Circular No. 35

Dated 24/3/1970

Financial year 1970-71

Instructions for deduction of tax at source from interest on securities during financial year 1970-71 at the rates specified in Part III of First Schedule to Finance Bill, 1970

I am directed to forward a copy of draft circular letter setting out the rates at which income-tax and surcharge should be deducted from interest on Government securities after April 1, 1970. It is requested that a circular on the basis of this draft may be issued by you immediately to all Treasury Officers and Sub-Treasury Officers under your control, individually.

Circular : No. 35 [F. No. 275/41/70-ITJ], dated 24-3-1970.

Draft Circular Referred to in Instructions

1. I am to invite your attention to this Office Letter.........regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1969-70.

2. According to the Finance Bill, 1970, income-tax is to be deducted from the entire amount of interest on securities at the following rates, namely :

	Income-tax	Rate of Income-tax	Rate of Surcharge
I.	In the case of a person other than a company
	(i) where the person is resident
	on interest on securities (excluding interest payable on a tax-free security)	20 per cent	2 per cent
	(ii) where the person is not resident in India
	(a) on interest on securities (excluding interest payable on a tax-free security)	income-tax at 30 per cent and surcharge at 3 per cent of the amount of the interest,
		or
		income-tax and surcharge on income-tax in respect of the interest at the rates prescribed in Paragraph A of Part III of the First Schedule to the Finance Bill,1970, if such interest income had been the total income,
		whichever is higher;
	(b) on interest payable on a tax-free security	15 per cent	1.5 per cent
II.	In the case of a company
	(i) where the company is a domestic company
	on interest on securities (excluding interest payable on a tax-free security)	22 per cent	Nil
	(ii) where the company is not a domestic company
	(a) on interest payable on a tax-free security	44 per cent	Nil
	(b) on interest on other securities	70 per cent	Nil

3. The term domestic company under the Act means an Indian company or any other company which, in respect of its income liable to tax under this Act, 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 provision of section 194.

4. In making payment or crediting interest on Government securities on or after April 1, 1970 you should, therefore, deduct income-tax at the rates specified above, except in the cases where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. The following instructions should be allowed in this connection :

(1) Exemption or abatement certificates issued before April 1, 1970 authorising deduction of tax at a particular rate expressed as a percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1971.

(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1970 authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein.

(3) No tax should be deducted in cases in which from a certificate issued by the Income-tax Officer or otherwise, you are satisfied that the payee is a person exempt from income-tax under sections 10 to 13. In this connection it may be specifically noted that under clauses (20A) and (22A) proposed to be inserted in section 10, income of the following categories of persons will be completely exempt from tax :

  (a)  State Housing Boards, Development Boards and similar other authorities constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages;

  (b)  hospitals and other medical institutions which exist solely for philanthropic purposes and not for purposes of profit.

(4) No tax should be deducted from any interest payable on 4 per cent National Defence Bonds, 1972 or 6 per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 where any such Bonds are held by a resident individual and in the case of Gold Bonds, where the holder thereof makes a declaration in writing before the person responsible for making the payment that the total nominal value of the 6 per cent Gold Bonds, 1977 or, as the case may be, the 7 per cent Gold Bonds, 1980 held by him (including such Bonds, if any, held on his behalf by any other person) did not in either case exceed Rs. 10,000 at any time during the period to which the interest relates.

(5) No tax should be deducted from interest payable to a non-resident on 4 per cent National Defence Loans, 1968 and 4 per cent National Defence Loans, 1972 as the interest paid on these loans to non-residents is totally exempt from income-tax under Notification No. SO 3331, issued under section 10(4) of the Income-tax Act, 1961. In the case of residents receiving interest on these loans, deduction of tax has to be made at the prescribed rates, except when the recipient is an individual.

(6) No tax should be deducted from interest payable on National Savings Certificates (First Issue) including National Savings Certificates (First Issue) Bank Series or 7-year National Savings Certificates (Fourth Issue).

(7) 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 before you to the effect that :

  (a)  he has not previously been assessed under the 1961 Act, or under the 1922 Act;

  (b)  his total income of the previous year in which the interest is due is not likely to exceed the maximum amount not chargeable to income-tax; and

  (c)  the total nominal value of the securities held by him (including such securities, if any, as are held on his behalf, by any other person) did not exceed Rs. 2,500 at any time during the said previous year.

(8) No tax should be deducted from any sum payable by way of interest or dividends in respect of any securities or shares owned by a corporation established or under a Central Act which under any law for the time being in force is exempt from income-tax on its income.

(9) Under section 288B, fractions of one rupee contained in the amount of tax (including advance tax and tax deducted at source) 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 provision of the Act.

(10) In cases of doubt the Income-tax Officer should be consulted before making the deduction from interest on Government securities.