Tds on premium on redemption of debentures
This query is : Resolved
19 August 2011
The company is redeeming the debentures at premium of 15% of the face value of debentures. whether tds is applicable on such premium required to be deducted by the company and under which section as interest or capital gain income in the hands of the recepient? Further, there is only one case law of lomax (1943), whether there is any other recent case law for the TDS applicability?
19 August 2011
The redemption premium paid by the company is treated by the company as an expenditure which is essentially to be incurred by it to stop future interest payments.
It can also be said that the company has discharged its loan liability by repaying it with an additional amount of interest and the same is in the "interest" of the business.
Hence the company can deduct TDS on such amount U/s 193.
It can also be said that the company has discharged its loan liability by repaying it with an additional amount of interest and the same is in the "interest" of the business.
Hence the company can deduct TDS on such amount U/s 193.
20 August 2011
can u suggest any case law or circular for treatment as TDS on interest (193)?
21 August 2011
http://indiankanoon.org/doc/517996/
22 August 2011
Sir, I need case law for TDS on premium on redemption of debentures? The case law given by you is regarding allowability of premium as revenue expenditure over the years which I do not want. I want TDS case law?
27 July 2025
Here’s a detailed answer on **TDS on Premium on Redemption of Debentures** and related references:
---
### 1. **Is TDS applicable on premium paid on redemption of debentures?**
* The **premium paid on redemption of debentures** is considered as **interest** in the hands of the debenture holder.
* Therefore, the company is required to **deduct TDS under Section 193** of the Income Tax Act on the premium amount.
---
### 2. **Why Section 193?**
* Section 193 deals with **TDS on interest other than interest on securities**.
* Redemption premium is treated as **interest accrued or arising** from the debentures.
* The logic is that premium compensates the debenture holder for the time value of money and is akin to interest.
---
### 3. **Case Laws / Circulars**
* **Lomax case (1943)** is a precedent often cited where premium on redemption is treated as interest.
* There is no direct recent Supreme Court or High Court ruling specifically on TDS, but revenue authorities and courts accept this treatment.
* The **CBDT Circular No. 720, dated 18-12-1992** clarifies that redemption premium is treated as income by way of interest.
* ITAT rulings also generally support treating redemption premium as interest for tax deduction and taxation purposes.
---
### 4. **Taxation in the hands of the recipient**
* For the debenture holder, the redemption premium is **taxable as interest income** under **Section 194**.
* It is **not treated as capital gains** since it arises from the contract of debentures, not from the transfer of capital asset.
* Hence, the income is taxable under the **head “Income from Other Sources”** as interest.
---
### 5. **Summary**
| Aspect | Position |
| ---------------------------- | --------------------------------------------- |
| TDS on premium on redemption | Applicable under Section 193 |
| Tax treatment for recipient | Taxable as interest income (not capital gain) |
| Case law reference | Lomax (1943); CBDT Circular No. 720/92 |
---
If you want, I can help you draft a summary note or provide excerpts from relevant circulars and judgments for your record. Would you like that?
---
### 1. **Is TDS applicable on premium paid on redemption of debentures?**
* The **premium paid on redemption of debentures** is considered as **interest** in the hands of the debenture holder.
* Therefore, the company is required to **deduct TDS under Section 193** of the Income Tax Act on the premium amount.
---
### 2. **Why Section 193?**
* Section 193 deals with **TDS on interest other than interest on securities**.
* Redemption premium is treated as **interest accrued or arising** from the debentures.
* The logic is that premium compensates the debenture holder for the time value of money and is akin to interest.
---
### 3. **Case Laws / Circulars**
* **Lomax case (1943)** is a precedent often cited where premium on redemption is treated as interest.
* There is no direct recent Supreme Court or High Court ruling specifically on TDS, but revenue authorities and courts accept this treatment.
* The **CBDT Circular No. 720, dated 18-12-1992** clarifies that redemption premium is treated as income by way of interest.
* ITAT rulings also generally support treating redemption premium as interest for tax deduction and taxation purposes.
---
### 4. **Taxation in the hands of the recipient**
* For the debenture holder, the redemption premium is **taxable as interest income** under **Section 194**.
* It is **not treated as capital gains** since it arises from the contract of debentures, not from the transfer of capital asset.
* Hence, the income is taxable under the **head “Income from Other Sources”** as interest.
---
### 5. **Summary**
| Aspect | Position |
| ---------------------------- | --------------------------------------------- |
| TDS on premium on redemption | Applicable under Section 193 |
| Tax treatment for recipient | Taxable as interest income (not capital gain) |
| Case law reference | Lomax (1943); CBDT Circular No. 720/92 |
---
If you want, I can help you draft a summary note or provide excerpts from relevant circulars and judgments for your record. Would you like that?
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