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Interest on Securities(AY 2015-16)

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• Regulatory Framework

• Scope of ‘Interest on Security’: u/s 22• Deductions from ‘Interest on Security’: u/s 23

• DS ! "rossing#up of ‘Interest’ net of DS: $/S %&

• 'on#(ssessa)le Income in respect of ‘Interest on

Security’

• In*estment (llowance Items relating to Securities

• +,amples of ‘Interest on Security’(ssessment

 ssues Covered:

ssues Covered:

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“ nterest on Securities”:

nterest on Securities”:

Regultor!

egultor!

"r#e$or%

r#e$or%

Sections 22- 23- &.- &.0

Su)sections of sec1 2: &%- 3.-34DS a, Deducted at Source:5common sections 64 ! 67- %&

Rules &2 5u/s 67Sc8edules

Sixth Schedule: Part A 9ara#26- 6.

Sixth Schedule: Part B 9ara#&.- 9ara#2- 9ara#24

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;riterion for ;onsidering Income under <Interest on Securities=

;onditions of treating any income under t8e 8ead

<Interest on Securities=:Income must )e identified as <interest=Income must )e on <securities=

 

>utside t8e scope of t8is 8ead of income:• Interest income on "o*ernment Sa*ings Instrument

Sanc8aypatra ? under t8e 8ead <Income from ot8er sources=5DS u/s %2D @ %AB except if i t8e sa*ings instrument is purc8ased )y an

appro*ed superannuation fund or pension fund or gratuity fund or a recogniCed

pro*ident fund- or a workers’ profit participation fundB ii t8e cumulati*e

in*estment at income year#end in t8e pensioners’ sa*ings certificate or wage

earners de*elopment )ond does not e,ceed k % lak81 DS is final disc8arge of

ta, lia)ility from (2.&%#&0B F( 2.&%7• Di*idend income on s8are/stock or discount income on )ond ?

under t8e 8ead <Income from ot8er sources=• Interest income on loan gi*en ? under t8e 8ead <Income from

ot8er sources=

5'ote: ()o*e incomes may )e classified as <Income from Eusiness or

9rofession= for )anks and financial institutions17

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i1 Interest on any "o*ernment securityor any security appro*ed )y

"o*ernment- and

ii1 Interest on de)enture or ot8ersecurity of money issued )y or on

)e8alf of a local aut8ority or a

company1

Scope of I'+R+S >' S+;$RII+S: Sec1 22

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Deductions from ‘Interest on Security’: u/s 23

i Eank’s commission or c8arges on realisation of

t8e interest 5u/s 23&a7

ii Interest e,pense on money )orrowed for

in*estment in t8e securities 5u/s 23&)7

 

Limitations on deduction:  'o allowance or deduction s8all )e made on account

of )ank’s commission or c8arges- or interest e,pense

in respect of- or alloca)le to ta,#e,empted "o*ernment

security 59ro*iso to section 23&71

'o deduction in respect of interest e,pense s8all )eallowed- if it is paya)le outside Eanglades8 )ut ta, 8as

not )een deducted or collected at source under

sections 6&g ! %0 and rule &2 5vide u/s 232 71

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DS from <Interest on Securities= ! "rossing#up

• Interest on security is su)ect to ‘ta, deducted at source’ DS under

t8e pro*isions of sections 6&)- and %& and rule &&1 (s perpro*ision of section %&- DS on interest on security of t8e

"o*ernment- or security appro*ed )y t8e "o*ernment- unless t8e

"o*ernment ot8erwise directs s8all )e at %A upfront1 Eut no DS will

)e applica)le on treasury )ill/treasury )ond issued )y "o*t1 from

F2.&%#&0B F(2.&%1 • $nder section 642- DS s8all )e deemed to )e t8e income recei*ed

)y t8e assessee and it s8all )e treated as payment of ta, in due time

)y t8e assessee1 So- interest on security ‘net of ta,’ or ta,#deducted

interest 8as to )e ‘grossed#up’1

Formula for "rossing#up

"ross Interest G Interest net of ta, / & ? Rate of DS

'on#asssessa)le Income regarding <Interest on Securities=

Si,t8 Sc8edule- 9art#(:

9ara#26: Interest on ta,#free "o*ernment security- if any totally e,empted1

Para-40: Any income derived from Zero Coupon Bond received by a person other than

Ban! "nsurance or any #inancial "nstitution

a, Deduction at Source DS from <Interest on Securities=: Sec1 %&

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;lassification of Securities for ;omputation of

‘Interest on Security’$a%or

ClassificationSub-

classification&'S ( re)uirement of *rossin*-up

+on-assessable limit

GovernmentSecurity:u/s 22(a)

Tax-freeGovtsecurities

Subject to no TDS & nogrossing-up reuire!"

Tota##y non-assessab#e$if issue! %it tecon!ition tat interesttereon sa## not be#iab#e to tax 'ara-2$Sixt Sce!u#e$ art-*+"

Taxab#eotersecurities

− Subject to TDS & grossing-upreuire! on#y if interest net oftax given"

− TDS at , upfront$ except for

&reasury Bill,Bond from

#.0/-/1 'sec" ,.+

Tota##y assessab#e$ i"e"$no non-assessab#e #imit"

 on-Govt"Security(issue! by a#oca# autorityor a company): u/s 22(a)

0terSecuritiesof 1oney

Subject to TDS at , if tesecurity is approve! by teGovernment 'sec" ,.+ an!grossing-up reuire! on#y ifinterest net of tax given"

Tota##y assessab#e$ i"e"$no non-assessab#e #imit"

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In*estment (llowance Items: 9art E- Si,t8 Sc8edule

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+,ample: ;omputation of income under t8e

8ead <Interest on Securities=

Facts: 

Hr1 age 6% years 8as purc8ased t8e following securities on w8ic8 8e

earned t8e income mentioned )elow:

a"ross interest on 3#mont8 De*elopment Eond purc8ased in (ugust

2.&6 and matured in 'o*em)er 2.&6: aka &..-... ta, deducted at

source @ %A upfront 59urc8ased De*elopment Eond of aka 6-...-...wit8 an interest rate of &.A per annum- wit8 cas8 payment of aka

6-..%-... including upfront ta,- and recei*ed aka 6-&..-...71

)Interest on "o*ernment )ond aka &.-... after deduction of ta, @

%A

cInterest on de)enture aka %-...B

 Following were t8e e,penses to earn t8e a)o*e income:

Eank collection c8arge aka &2-... Interest on )orrowed capital aka 0-...1

ReJuired:

;ompute t8e income under t8e 8ead <Interest on securities=1

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Solution: ;omputation of <Interest on Securities=

+,ample: ;omputation of income under t8e

8ead <Interest on Securities=

articu#ars Taa Taa"nterest on Securities: u,s ..

3nterest on Deve#opment 4on! (gross) .55$555

3nterest on Government bon! '.65$555/(.-,)+ 255$555 755$555

3nterest on !ebenture 8,$555

2ross income under 3"nterest on Securities 56!0007ess: *##o%ab#e !e!uctions u/s 27

4an co##ection carge3nterest on borro%e! capita#

.2$5559$555 /8!000

"ncome under the head 3"nterest on Securities 56!000

&otal "ncome Tax ate *mount of Tax

9n other income: &aa 56!000

0n first Taa 2,5$555 i#

0n next Taa .58$555 .5 .5$855

2ross &ax on &aa 56!000 /0!600

7ess: TDS u/s ,. ',$555;.5$555+ .,$555+et tax payable,refundable; 4!500;

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