“security of the Central Government or a State Government” falling under clause (iv) of proviso to Sec. 193 as an item excepted from duty to deduct tax and that it is necessary to deduct tax on 8 per cent Savings (Taxable) Bonds, 2003, because of the proviso under the same sub-clause, it should have been found that the rate of tax that should have applied could not be 10 per cent either under sub-clause (i) or (v) of sub-section (1)(a), because both these clauses exclude interest “other than interest on securities”, so that the inference that residuary clause of 20 per cent alone should have application. You may therefore reconsider your clarification. Circular No. DGBA.CDD. No.H-3024/13.01.299/2007 -08 dated September 19, 2007, on the subject explains that tax deduction on interest payment exceeding Rs. 10,000 for the financial year is with effect from June 1, 2007 and that the deduction need not await maturity of the bonds. It does not indicate the rate of tax deduction, as it is silent as to the rate of tax. The rate of tax deduction has to follow the rate in force as stipulated under Sec. 193. Such stipulation is made by the Finance Act for Sec. 193 and other sections are: 194, 194A, 194B, 194BB, 194D and 195. The language of the classification in sub-clause (i) and (v) is the repetition of the same clause as in earlier Finance Acts, when interest on securities of the Central and State governments was not liable for tax deduction, so that where tax deduction of 10 per cent was provided, there was need for exclusion of interest on securities issued by Central or State government as specifically mentioned in sub-clause (v) and generally mentioned in clause (i). Now that there is an exception within an exception, the clause (i) and (v) should be understood to mean that it will now apply to Savings (Taxable) Bonds, 2003 other than interest on other securities, so as to retain exemption for income from such other securities. But for the use of the expression excluding from Central and State government securities, they would have also become liable for tax deduction under the Finance Act, contrary to the main provision giving exemption from duty to deduct tax for such securities under proviso (iv) of Sec. 193. Tax deduction is continued to be exempted for Government securities other than Savings (Taxable) Bonds, 2003.Guidance is available in the definition of “investment income” in the context of relief for income from non-resident Indian (NRI) investments in foreign exchange in Chapter XII-A under Sec. 115C(c), which covers income from debentures, deposits and Government securities as investments. Even as mentioned in the earlier answer, tax rate at 20 per cent is not also consistent with the rates adopted for other deductions. The rate of 20 per cent applies for non-residents. The answer earlier given does not require revision. – www.thehindu.com