I am seeking assistance regarding the calculation of TDS on zero coupon bonds with a term of 5 years, which are maturing this year.
As we will be receiving principle + interest for the past 5 years on maturity, my query pertains to whether TDS will be calculated on the complete interest accumulated over the past 5 years or solely on the interest earned for this year.
If anyone has knowledge or experience in this area, I would greatly appreciate your guidance.
Section 193 of the IT-act mentions that
TDS will not be withheld if the interest to be paid in the financial year is within INR 5000.
In the case of cumulative NCDs,
i believe the entire amount of cumulative interest will be considered
as being paid in the financial year (in the year when it matures),
and hence TDS will be withheld if cumulative interest exceeds INR 5000.
However, irrespective of the TDS withheld,
it appears that the actual tax liability may depend on
the accounting method one uses for one’s entire finances (not just the NCD income).
cash accounting method
tax deferred and paid when finally the accrued interest is received.
mercantile accounting method
tax calculated and paid annually when earned, even if not yet received.
So. based on the accounting method one follows,
one may be able claim any additional tax withheld as TDS,
while later filing Income Tax Returns for the year.
PS: I am not a CA. The above is not financial advice. Please consult a CA for definitive information.
2. Subsequently, one can search for the prospectus on SEBI’s website
containing the name of the issuing-company
published a couple months before the date-of-issue.
if these zero coupon NCD are bought near to maturity, will the NCD issuer deduct TDS on entire interest paid on maturity or on gain to the last final holder only.
Yes, that’s my understanding.
The issuer will not be aware of any gains/losses one may have faced
based on the price one purchases it at, in the secondary market.
