Costing and Taxation · Ch 3 — Income from Other Sources
Interest on Securities
Interest on Securities
Section 56(2)(id) charges 'income by way of interest on securities' under this Head, UNLESS the securities in question are held as stock-in-trade of a business the assessee actually carries on — in that case, the interest is business income instead, not Income from Other Sources. 'Securities' here means Government securities (Government promissory notes, stock certificates, bonds) and debentures or bonds issued by a local authority or a company.
Deductions allowed against Interest on Securities — Section 57
Unlike winnings (Section 3.3), interest on securities DOES permit certain deductions in arriving at the net taxable amount:
Deductions under Section 57 (against Interest on Securities)
- Any reasonable sum paid, by way of commission or remuneration, to a banker or any other person, for the purpose of realising the interest on behalf of the assessee.
- Interest on money borrowed by the assessee for the purpose of investing in the securities that generate this income.
Interest on securities is often received NET of tax already deducted at source (commonly at 10% under Section 193, subject to specified exemptions). Where a problem states a NET interest figure, the GROSS interest — the amount actually chargeable to tax — must first be worked out by grossing up the net figure for the TDS already deducted, BEFORE any Section 57 deduction is applied.
Grossing up a net interest figure …
Interest on Government securities and on debentures/bonds of a local authority or company, taxable under Income from Other Sources (unless held as stock-in-trade of a business …
Against Interest on Securities: reasonable bank/collection commission for realising the interest, and interest on money borrowed to i …