Financial Year 1978-79
Circular No. 238 was issued by the Central Board of Direct Taxes on 28 April 1978. Its subject is Financial Year 1978-79.
Forwards to Commissioners a draft circular letter, to be issued at once to every Treasury Officer and Sub-Treasury Officer, setting the rates for deduction of income-tax and surcharge from interest on Government securities after 31st March 1978, in continuation of Circular No. 228 dated 14th July 1977. Interest payable to the Life Insurance Corporation of India is exempt from deduction with effect from 1st June 1976. Otherwise, for a resident non-company payee the rate is 20 per cent plus 3 per cent surcharge on securities other than tax-free securities; for a non-resident, 30 per cent plus 4.5 per cent, or the tax and surcharge the interest would bear as total income under the Finance Act, 1978, whichever is higher, and 15 per cent plus 2.25 per cent on tax-free securities; for a domestic company, 22 per cent plus 1 per cent; and for a foreign company, 44 per cent plus 2.2 per cent on tax-free securities and 70 per cent plus 3.5 per cent on others. Certificates under section 197(1) are to be honoured, including those issued before 1st April 1978 if operative for the year ending 31st March 1979. Nothing is to be deducted where the payee is satisfied to be exempt under sections 10 to 13; on 7 per cent Gold Bonds, 1980 held by a resident individual who declares that the nominal value of such bonds held by him, including any held for him by another, never exceeded Rs. 10,000 during the period to which the interest relates; on National Savings Certificates (First Issue), including the Bank Series, and 7-Year National Savings Certificates (Fourth Issue); on National Development Bonds; and on other Central or State Government securities held by a resident individual who makes the prescribed declaration.
The annual exercise of putting the year's rates before the treasury officers who pay interest on Government securities.
FINANCIAL YEAR 1978-79
1726. Instructions for deduction of tax at source from interest on securities during financial year 1978-79 at the rates specified in Part III of First Schedule to Finance Bill, 1978
1. In continuation of this Department’s Circular : No. 228 [F.No. 275/21/77-IT(B)], dated 14-7-1977 a copy of the draft circular letter setting out the rates at which income-tax and surcharge should be deducted from interest on Government securities after March 31, 1978 is forwarded herewith.
2. A circular on the basis of this draft may please be issued immediately to all Treasury Officers and Sub-Treasury Officers under your control individually.
Circular : No. 238 [F.No. 275/13/78-IT(B)], dated 28-4-1978.
DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS
1. I am to invite your attention to this Office Letter No........regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1977-78.
2. According to the Finance Act, 1978 except in the case of interest on securities payable to Life Insurance Corporation of India which is exempt from deduction of income-tax with effect from June 1, 1976, 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 case of a person other than a company—
( i) where the person is resident in India—
20 per cent
3 per cent;
on interest on securities (excluding interest payable on a tax-free security)
(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 4.5 per cent 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 Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1978, if such interest income had been the total income,
whichever is higher;
(b) on interest payable on a tax-free security
15 per cent
2.25 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
1 per cent;
(ii) where the company is not a domestic company—
(a) n interest payable on a tax-free ecurity
44 per cent
2.2 per cent
(b) on interest on other securities
70 per cent
3.5 per cent
3. The term "domestic company" means an Indian company or any other company which, in respect of its income liable to income-tax under the Income-tax Act, 1961, for the assessment year commencing on April 1, 1978 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 provisions of section 194.
4. In making payment or crediting interest on Government securities after March 31, 1978, you are requested to deduct income-tax at the rates specified above, except in 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 followed in this connection :
(1) Exemption or abatement certificates issued before April 1, 1978 authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1979.
(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1978 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.
(4) No tax should be deducted from any interest payable on 7 per cent Gold Bonds, 1980 where any such Bonds are held by a resident individual and in the case of the aforesaid 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 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 on National Savings Certificates (First Issue) including National Savings Certificates (First Issue) Bank Series or 7-year National Savings Certificates (Fourth Issue).
(6) No tax should be deducted from any interest payable on National Development Bonds.
(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 the person responsible for making the payment 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 previous year in which the interest is due is not likely to exceed the minimum amount not chargeable to income-tax; and
(c) the total nominal value of the securities held by him (including such securities, if any, 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 in respect of any securities owned by a corporation established by 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 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 provisions of the Act.
(10) In the case of doubt, the Income-tax Officer should be consulted before making the deduction from interest on Government securities.
In an old default proceeding for the financial year 1978-79, and when checking why no tax was deducted on a small holder's Government security interest of that year.
Source: the Income Tax Department’s own published text — its page for this instrument.
