RBI Bonds Vs TDS - RBI Notification

Hi Nikita, Can u update this is the Notification Section also

MOST URGENT & IMPORTANT To, Date: 04/11/2008 Hon’ble Finance Minister Government of India New Delhi Dear Sir, Query/Suggestion regarding Issue of T.D.S. Certificate when interest is payable on maturity on cumulative basis in respect of 8% Savings (Taxable) Bonds 2003 issued in terms of notification no. F4(10)W&M2003 dated 21/03/2003 Issued by Government of India. Reserve Bank of India, vide its circular ref no. DGBA.CCD. No. H-1311/13.01.299/2008-09 DATED 05/08/2008 has issued instructions based upon which interest is being wrongly and illegally deducted in respect of above cumulative type of bonds after clubbing/taking whole interest for six financial years in the one financial year resulting in illegal action causing huge loses to the investors . In this connection we have to observe as under:- 1. Since interest is accruing @ 8% p.a., how R.B.I./Banks can club income of six financial years and issue one T.D.S. Certificate thereby requiring investors to pay abnormally huge tax in one financial year in respect of interest income, which has accrued over past six years. Tax effect is explained by way of example as per Annexure ‘A’. 2. RBI/Banks must be advised to issue TDS certificate at the end of each financial year in respect of interest accruing during the said financial year so that investor could rightly, accurately, and legally pay income tax on his income for each financial year. 3. Investors’ interest must be taken care so that they do not have to pay tax on interest of six years after clubbing the interest of six financial years. It shall put a person in highest tax bracket as shown in example as per Annexure ‘A’. 4. Income Tax Officer shall also be in fix because inspite of his willingness to tax Assesse on accrual basis, he will be compelled to assess the income of six financial years in the one financial year on the basis of TDS certificate issued after clubbing the income of six financial years. 5. TDS certificate must be issued at the end of each financial year in respect of interest accruing during the said financial yea rand not after clubbing interest for all the six years. 6. In case of cumulative bonds interest is/must be deemed to have been credited at the end of each financial year and cannot be presumed to have been credited at the end of the sixth financial yea at the time of maturity. 7. Since TDS provisions have come into effect with effect from 1/6/07 TDS in respect of interest prior to 1/6/2007 cannot be deducted in respect of cumulative bonds simply because interest is postponed to be paid although deemed credit has already taken place financial year. 8. Tax on the interest portion of maturity value in respect of 8% savings taxable bonds (CUMULATIVE) 2003 will be deducted at source at the time of payment of the maturity proceeds on the cumulative bonds and credited to the government account. 9. TDS certificate in respect of interest shall be issued to the investor only at the time of maturity after six years after clubbing the interest accruing @ 8% p.a. 10. Since interest is accruing @ 8% p.a. how you can club income of six financial years and issue one T.D.S certificate thereby requiring investors to pay abnormally huge tax in one financial year in respect of interest income, which has accrued over past six years? Tax effect I explained by way of example as per Annexure ‘A’. 11. Why RBI should not issue, (in view of provisions of section 193 read with section 199 of the Income Tax Act, 1961) TDS certificate at the end of each financial year in respect of interest during the said financial year so that investor could rightly, accurately and legally pay income tax on his income for each financial year? 12. How assesses\investors’ interest could be taken care so that they have not to pay tax on interest income of six years after clubbing the income of six financial years? It shall put a person in highest tax bracket as shown in example as per Annexure ‘A’. 13. Whether it would not be illegal to issue TDS certificates at the end of six years clubbing interest which has accrued @ 8% p.a. as provided in terms of government notification? ANNEXURE-'A' Income Tax Calculations on Investment of Rs. 1000000/- in 8% savings bonds,2003 (Interest payable on maturity on cumulative basis at the end of six years.) FINANCIAL IF TDS CERTIFICATE IS ISSUED EVERY IF TDS CERTIFICATE IS ISSUED AT YEAR FINANCIAL YEAR THE TIME OF MATURITY AFTER CLUBBING THE INCOME OF SIX YEARS Interest income Tax Payable Interest income Tax Payable Rs. Rs. Rs. Rs. 1st 81600 0 0 0 2nd 88259 0 0 0 3rd 95460 0 0 0 4th 103250 0 0 0 5th 111675 0 0 0 6th 120756 0 601000 133179 601000 0 601000 133179 Presumption: - (1) No other income of Assesse presumed. SUBMISSION 1. No TDS certificate in respect of interest up to the period 30/05/07 in respect of cumulative bonds is deducted. 2. Interest in respect of cumulative bonds be deemed to be credited every financial year and TDS certificate and TDS certificate be issued along with. 3. Interest for six years must not be clubbed and one TDS certificate at the end of every financial year. In view of above and further to do justice to investors, to correct legally and properly collect taxes and also to avoid harassment to investors and Income Tax Officer, it is submitted that action should be taken so that TDS certificate in respect of cumulative interest payment basis is issued on yearly basis in respect of interest accruing in each financial year and income of six years is not clubbed altogether. Till the amendments/clarification acceptance of bonds should be stayed. Thanking you yours faithfully, NATHMAL AGARWAL CHARTERED ACCOUNTANT NATHMAL AGARWAL 3, BENTINCK STREET KOLKATA 700001 nmanma123 @ hotmail.com DIAL:03322420207 please cmment treating matter most urgent,thankyou

Is rbi/banks still issuing one TDS certificate for cumulative option or every year.and will it reflect in my 26as every year or only in the year of maturity

Dear All,

Based on the understanding provided by the State Bank of India the Tax Deduction at Source (TDS) on bonds shall be deducted at the time of maturity payment and not each year on accrual basis. This means no TDS shall be deducted in each of the 6 year period but the entire interest become eligible for TDS only at the end of the 6^th year.

In this regard the following needs attention:

1. Section 193 (iv) of the Income Tax Act 1961 states as follows: 193. The person responsible for paying to a resident any income by way of interest on securities shall, 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, deduct income-tax at the rates in force on the amount of the interest payable: Provided that no tax shall be deducted from-

any interest payable on any security of the Central Government or a State Government: Provided that nothing contained in this clause shall apply to the interest exceeding rupees ten thousand payable on 8% Savings (Taxable) Bonds, 2003 ⁵[or 7.75% Savings (Taxable) Bonds, 2018] during the financial year;

2. As per the notification issued by Reserve Bank of India, RBI / 2007-08/141, dated September 19, 2007 (refer para (iii) of Annex 1), which states as follows (reproduced from the notification):

Sl No	Issue	Comments
(iii)	If tax is to be deducted only on maturity for those who have opted for cumulative scheme, what is the position of those who are adopting mercantile system of accounting and offered interest on accrual basis in the past years?	Tax deduction does not have to wait until maturity but is to be made, whenever the interest is credited or paid, whichever is earlier provided the amount of interest credited or paid during the financial year exceeds the threshold limit of Rs. 10,000/-

 

3. As per the notification issued by Reserve Bank of India, RBI/2008-2009/121dated August 5, 2008 (refer para 4 of Annex 3), which states as follows (reproduced from the notification):

Sl No.	Issue	Comments
4	In case of ‘cumulative’ type of investments, interest is payable on the date of maturity. In such cases, whether the TDS is required to be deducted on entire interest payable on the date of maturity or on deemed date of payment i.e. on accrual basis every year	On ‘cumulative’ type of investments, if the interest is credited every year, tax deduction has to be made if the interest credited during the financial year exceeds the threshold limit of Rs. 10,000/-. Thus, in the case of ‘cumulative’ type of investments, though the interest is payable on the date of maturity, tax deduction is still to be made whenever the interest credited or paid exceeds the threshold limit during the financial year.

4. Therefore in case of Cumulative RBI Bonds scheme:

1. Interest on half yearly basis should be credited only then the cumulative interest is calculated, therefore the credit of interest occurs prior to actual payment of interest.
2. The limit of Rs. 10,000 is applicable for each financial year and therefore we are entitled to this threshold on yearly basis and not only at the time of maturity when the interest is actually paid;
3. Is it right for us to account for interest on Bonds on accrual basis in our Income Tax Return and pay tax based on that each year on accrual basis? But TDS if deducted at the time of maturity will appear only in one year in form 26 AS and will create anomaly if the whole interest is not accounted for in the same year. This will not only take away the benefit of each year threshold limit of 10,000 but may also put us in different tax slabs.

Does anyone has any advice on the above clarifications?

 

 

 

I am also interested to find out if a cumulative bond holder can show interest income every year or at the time of maturity?