Question 5. Write brief notes on the following:
iii) Interest on Securities
Solution: Interest on Securities if charged under the head ‘income from other sources’ means the following :
- Interest on any security of the Central or State Government;
- Interest on debentures or other securities for money issued by or on behalf of a local authority;
- Interest on debentures issued’ by a company (whether Indian or foreign); and
- Interest on debentures or other securities issued by a Statutory Corporation.
Basis of Charge
1) Income from interest on securities is chargeable on due basis if the assessee follows mercantile system of accounting. In case books are maintained on cash basis this income is taxable on receipt basis. However, where no method of accounting is regularly employed by the assessee, the income from interest on securities shall be chargeable to tax as the income of the previous year in which it becomes due though it may be received latter.
2) Interest on securities does not accrue from day to day but becomes due on certain fixed dates only; which are mentioned on the security itself. It means that interest on securities is chargeable to tax in the hands of one who holds the securities, as owner, on the due date of interest. Where securities are sold before the due date of interest, the entire amount of interest payable on the next due date shall be deemed to be the income of the buyer who holds the securities on the said due date as owner thereof. This amount will not be apportioned on time basis between the seller and the buyer, whether it is bought and sold on cum-int. Basis or ex-int. basis.
3) Interest on securities shall be chargeable to tax under the ‘Business or Profession’ if securities are held as stock-in-trade or under the head ‘Income from Other Sources’, if securities are held as investments.
According to Section 10(15) the interest on certain securities is fully exempt from tax. Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and notified in this behalf to the extent of as notified.