What is the Interest on Securities?
Interest on Securities:
Under Income from other sources, securities will have the following meaning:
- 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.
Security is referred to acknowledgement of a debt in the form of a debenture, bond, etc. issued by the Central or any State Government, local authority, statutory corporation, or a company. Even securities issued by a foreign government or foreign company are covered by this definition of securities and interest thereon will be chargeable as interest on securities.
Basis of Charge.
Income from interest on securities may be taxed on receipt basis or it may be taxed on due basis. It depends upon the system of accounting adopted by the assessee. If the assessee follows the mercantile system of accounting, it is charged on due basis. In the event of books being maintained on cash basis, the income will be taxed on receipt basis. In case no particular method of accounting is regularly followed, it will be taxed on due basis, i.e. as the income of the previous year in which it becomes due even though it is received later.
Securities earn interest on certain fixed dates only, not on everyday basis. These dates are mentioned on the security itself. On the day the interest is due, whoever holds the securities, i.e. whoever is the owner, is taxed as the receiver of interest. Before the due date of interest, if the security is sold, the next buyer who holds the securities on the due date is the receiver of the, income.
Interest on securities is chargeable under the Business or Profession: if securities are held as Stock-in-Trade or under the head Income from Other Sources if they are held as investments.
In case of certain securities issued by Central or State Government or in case of certain notified bonds or debentures issued by public sector companies, the interest is fully exempt under Section 10(15). The interest in this case is normally 6% p.a. or less except in case of capital indexed bonds which carries the interest rates of 7%. Such interest which is around 6% p.a. (7% in case of capital indexed bonds) is fully exempt under Section 10(15).