TDS on interest on securities (s.193): when it applies

You hold debentures, or your company issues them, or you run a trust or a family business that pays interest on bonds. Someone asks: "Is TDS to be cut on this interest?" The answer depends on four things. What kind of security it is. Who receives the interest. How much is paid in the year. And which Act applies to the year of payment.

This article walks through the rule for resident payees. It follows the text of the law, names the Act for every section, and says plainly where the position changed.

Which Act applies to your payment

Two Acts matter right now.

• For payments up to financial year 2025-26 (ending 31 March 2026), the rule is section 193 of the Income-tax Act, 1961.
• The Income-tax Act, 2025 "shall come into force on the 1st April, 2026" (section 1(3), Income-tax Act, 2025). From tax year 2026-27, the same rule sits in section 393 of that Act. The official mapping of 1961 sections to 2025 sections lists section 193 ("Interest on securities") against section 393 ("Tax to be deducted at source").

The Finance Act, 2026 did not change section 193 of the 1961 Act. The consolidated text of section 193 carries only two footnoted changes, described below.

What the 1961 rule says (up to FY 2025-26)

Section 193, Income-tax Act, 1961 applies to "the person responsible for paying to a resident any income by way of interest on securities". That person must "deduct income-tax at the rates in force on the amount of the interest payable".

Three points sit inside that sentence.

1. Resident payee. Section 193 is about payments to residents. Payments to non-residents are governed by other provisions, which this article does not cover.

2. The ₹10,000 limit. The section now says the deduction applies where the income is "the amount or the aggregate of amounts exceeding ten thousand rupees during the financial year". The footnote to this wording shows it was inserted by Act No. 7 of 2025, with effect from 1 April 2025. So:

• From 1 April 2025 (FY 2025-26), tax is deducted only if interest on securities paid or credited to that payee exceeds ₹10,000 in the financial year (section 193, Income-tax Act, 1961, as amended by Act 7 of 2025).
• Before 1 April 2025, this aggregate threshold is not in the section text on file. Do not apply it to earlier years without checking the text then in force.

The test is on the aggregate for the year. Once the total crosses ₹10,000, the wording is to deduct "on the amount of the interest payable", not only on the excess.

3. "Rates in force". Section 193 itself gives no percentage. The rate comes from the Finance Act of the year. For FY 2025-26, Part II of the First Schedule to the Finance Act, 2025 covers cases where tax is deducted "at the rates in force" under section 193 (among others). For a payee who is not a company and is resident in India, it lists a rate of "10 per cent." on interest payable on:

• debentures or securities for money issued by or on behalf of a local authority, or a corporation established by a Central, State or Provincial Act;
• debentures issued by a company that are listed on a recognised stock exchange in India under the Securities Contracts (Regulation) Act, 1956 and its rules; and
• any security of the Central Government or State Government.

The same Part II lists "any other income" at 10 per cent. for such a payee. A domestic company as payee has its own, separate entry in that Part. Read the entry that fits your payee, and if none fixes a rate for your case, do not assume one.

Timing: earlier of credit or payment

Tax is deducted "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier" (section 193, Income-tax Act, 1961).

An Explanation adds a common trap. If the interest is credited to an account called "Interest payable account" or "Suspense account" or by any other name in the payer's books, "such crediting shall be deemed to be credit of such income to the account of the payee". So moving the amount to a suspense or payable ledger starts the TDS obligation. Waiting for the cheque does not.

When no TDS is deducted

The proviso to section 193, Income-tax Act, 1961 lists interest from which "no tax shall be deducted". The main ones for everyday cases:

• Central and State Government securities (clause iv): "any interest payable on any security of the Central Government or a State Government". There is a carve-out. For 8% Savings (Taxable) Bonds, 2003, 7.75% Savings (Taxable) Bonds, 2018, Floating Rate Savings Bonds, 2020 (Taxable), or any other security the Central Government notifies, the exemption does not apply to interest "exceeding ten thousand rupees payable during the financial year". This proviso to clause (iv) was substituted by Act No. 15 of 2024, with effect from 1 October 2024.
• Debentures of a company in which the public are substantially interested (clause v): no deduction on interest payable to a resident individual or Hindu undivided family if (a) the interest paid or likely to be paid on such debentures during the financial year by the company does not exceed ten thousand rupees, and (b) it is paid by an account payee cheque. The word "five" was replaced by "ten" in clause (v)(a) by Act No. 7 of 2025, with effect from 1 April 2025. For FY 2025-26, the limit is therefore ten thousand rupees. For earlier years, the limit in that clause was five thousand rupees, going by the footnote that records the replacement of "five".
• Insurers (clauses vi, vii, viii): interest payable to the Life Insurance Corporation of India, to the General Insurance Corporation of India or its four named companies, and to "any other insurer", in respect of securities they own or in which they have full beneficial interest.
• Business trusts (clause ix): interest payable to a "business trust" by a special purpose vehicle, on securities, as described in the clause.
• Older specified instruments such as National Development Bonds and certain National Defence and Gold Bonds (clauses i to iii), subject to the conditions in each clause.

Clauses (ii) and (iiia) now show as omitted in the text. Do not rely on them.

What the 2025 Act says (from tax year 2026-27)

Section 393(1), Income-tax Act, 2025 requires the person responsible for paying to deduct income-tax on the entire amount where the amount or aggregate of amounts exceeds the threshold limit in the Table, at the rate in the Table, "at the time of credit of such income or sum to the account of the payee or at the time of its payment in cash or by way of a cheque or a draft or by any other mode, whichever is earlier".

The row for this article is Table Sl. No. 5(i), section 393(1), Income-tax Act, 2025:

• Nature of income: "Any income by way of Interest on securities."
• Payer: "Any person."
• Rate: "Rates in force."
• Threshold limit: "₹10,000."

So the headline position carries over: payer, resident payee, ₹10,000 aggregate limit, "rates in force", and earlier-of-credit-or-payment timing.

Meaning of the term. Section 2(60), Income-tax Act, 2025 says "interest on securities" means interest on any security of the Central Government or a State Government, and interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.

Rate for tax year 2026-27. Part II of the First Schedule to the Finance Act, 2026 states that where tax is to be deducted at the rates in force under section 393(1) [Table: Sl. Nos. 1(i) and 5] of the Income-tax Act, 2025, deduction is made at the rates it lists. For a resident payee who is not a company, it lists "10%" on interest payable on local-authority or statutory-corporation debentures or securities, on listed company debentures, and on any security of the Central Government or State Government. "Any other income" is also listed at 10%. A domestic company as payee has a separate entry: it lists interest other than "Interest on securities", and "any other income", at 10% each, and that entry does not name interest on securities as such. Read it before you apply any rate.

Exemptions under the 2025 Act. Section 393(4) and its "For no deduction at source" Table list the cases where no deduction is made. For interest on securities (Sl. No. 6 of that Table), no deduction applies to:

• interest payable on National Development Bonds;
• such debentures as the Central Government may notify;
• any security of the Central Government or a State Government, other than the 8% Savings (Taxable) Bonds, 2003, the 7.75% Savings (Taxable) Bonds, 2018, the Floating Rate Savings Bonds, 2020 (Taxable), and any other security the Central Government notifies; and
• interest payable to the Life Insurance Corporation of India, the General Insurance Corporation of India and its four companies, any other insurer (for securities they own or in which they have full beneficial interest), and a business trust (on securities, by a special purpose vehicle).

Two differences are visible when you compare the text of the two Acts side by side. First, in the 2025 Act's no-deduction list for interest on securities, the section 193(v)-style exemption for small debenture interest paid to a resident individual or HUF by account payee cheque does not appear in that Table row. Second, the ten thousand rupee cap on the savings-bond exemption is not repeated in that row either; the row simply excludes the named savings bonds from the exemption. If you rely on either old exemption for tax year 2026-27, read the current section 393 before you decide.

Step by step: a working checklist

• Pick the Act by the date of credit or payment: section 193 (1961 Act) up to 31 March 2026, section 393 (2025 Act) after.
• Confirm the income is interest on securities, not a bank deposit or ordinary loan.
• Check the payee is a resident and whether an exemption in the proviso or in section 393(4) fits.
• Add up the year's interest per payee and compare with ₹10,000.
• Read the entry for your payee class in the Finance Act of the year. Do not carry a rate over.
• Deduct at the earlier of credit (including to a suspense ledger) or payment, and keep the records.

What not to do

• Do not apply the ₹10,000 limit to payments before 1 April 2025 without reading the text then in force.
• Do not treat a suspense-account entry as "not yet credited".
• Do not assume every government security is exempt. The named taxable savings bonds are carved out.
• Do not fix a percentage from memory.

What to do now

• Next step: list every payee who received interest on securities from you this year, with the total per payee. (Threshold: ₹10,000, section 193, Income-tax Act, 1961 for FY 2025-26; Table Sl. No. 5(i), section 393(1), Income-tax Act, 2025 from tax year 2026-27.)
• Timing: deduct at the earlier of credit or payment. (Section 193, 1961 Act; section 393(1)(c), 2025 Act.)
• Consequence of ignoring it: the payer is the "person responsible for paying", and the duty to deduct sits on that person. The consequence provisions for non-deduction are outside this article; read them before you decide to skip deduction. (Section 193, 1961 Act; section 393(1), 2025 Act.)

Have a CA review your facts before you act or file.

Frequently asked questions

Does section 193 apply to interest on a bank fixed deposit?
No. Section 193 deals with interest on securities. The 2025 Act separates the two: Table Sl. No. 5(i) is "Interest on securities", while Sl. No. 5(ii) and 5(iii) cover "interest other than interest on securities", with different payers and limits.

Is the ₹10,000 limit per security or per payee?
The wording is "the amount or the aggregate of amounts exceeding ten thousand rupees during the financial year" (section 193, 1961 Act). It is an aggregate. The 2025 Act uses "the amount or aggregate of amounts" against the threshold in the Table (section 393(1)(a)). Confirm how the aggregation applies to your facts with a CA.

I pay interest on debentures to a resident individual. Is TDS deducted?
Under the 1961 Act, the proviso to section 193 exempts interest on a debenture issued by a company in which the public are substantially interested, paid to a resident individual or HUF by account payee cheque, where the interest paid or likely to be paid by the company to that person in the year does not exceed ten thousand rupees (from 1 April 2025; five thousand rupees before). If the conditions are not met, deduct at the rate in force. Under the 2025 Act, check section 393 as described above; the same small-debenture exemption is not in the no-deduction Table row for interest on securities.

Did the Finance Act, 2026 change section 193?
No change to section 193 of the 1961 Act was found in the Finance Act, 2026. For tax year 2026-27 under the 2025 Act, the Finance Act, 2026 supplies the TDS rates in Part II of its First Schedule.

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