Course Name: Principal of Taxation

Equipped by: Md. Abul Hasan Mamun

Email: hasan.mamun@aqcbd.com

Income from interest on securities

As per section 22 of ITO 1984, Income classifiable under the head “Interest on Securities”
includes:
a) Interest receivable by the assessee on any security of the Government or approved
by the Government;
b) Interest receivable by him on debentures or other securities issued by or on behalf
of a local authority or a company. Section – 22 deals with interest on securities
issued by
 the Government,
 a local authority, or
 a company.

When interest on securities are taxable:

 Interest on securities becomes income/taxable only when it is actually received.

Allowable deductions U/S 23:

 Bank commission or charges for collection of interest. But following two expectation:
 For tax free government securities
 If bank commission charged for purchasing securities
 Interest on borrowed capital for investment in securities. But except of tax-free
Government securities and zero coupon bond.

Types of securities:
In terms of taxability, securities may be classified:
Course Name: Principal of Taxation
Equipped by: Md. Abul Hasan Mamun
Email: hasan.mamun@aqcbd.com

A. Government securities: Securities issued or approved by the Government fall under this
category.
1. Tax free: These are the securities issued by the government for which no tax is paid
hence it is declared tax-free. [Sixth Schedule, Part A, Para 24 and 24A].
2. Tax deductible government securities: These are the government securities on
which tax is deducted at source at specified rate [current TDS rate is 5% at upfront
system].

B. Commercial securities: Securities issued by or on behalf of a local authority or a company and

approved by the SEC will be considered as commercial securities. These types of securities
may be either debenture or zero coupon bonds.
1. Debenture: These are the securities issued by or on behalf of a local authority or a
company and approved by the SEC. Thus, debentures are approved securities.
2. Zero-coupon bond: A Zero-coupon bond is such type of bond where coupon
(interest) is zero. This type of securities is initially sold at a price lower than its face
value and the owner receives the face value at maturity.