Chapter-10

Interest on Securities

Tax is payable by an assessee under the head “Interest on Securities” in respect of the interest
received by him on Government securities or securities approved by Government and on
debentures or other securities issued by or on behalf of any other organization like local
authority and company subject to the deductions and exemptions provided for in the Act. But
the following will not come under the orbit of this section:

i) Interest payable on debentures issued by an individual, firms, associations, clubs etc. These
will not be assessable under this head, but chargeable under section 33 as (Other income).
ii) Shares of a company cannot also be called “Securities” under this section. So, dividend
received from ordinary shares or from preference shares shall not fall under this section.
iii) Securities issued by Foreign Government and interest received there on.
iv) Interest on Bank deposit or any such deposit.

Basis of Taxation: Interest under this head is taxed on receipt basis. In this connection it
may be mentioned that, in a case Justice Chagla, C.J. said; “Interest on Securities” becomes
income when it is actually received and not when it is due or capable of being received by the
assessee. The Madras High Court has taken the same view that interest on securities
becomes income when it is actually received.

Definition of Interest on Securities: Securities are tradable financial instruments used to

raise capital in public and private markets. A security is a financial instrument, typically any
financial asset that can be traded. Example: Equity (Common), Debt, combination of debt and
equity.

Section 2(38) of the Income Tax Ordinance, 1984 defines interest as any sum payable in
any manner in respect of any money borrowed, debt incurred or any credit facility availed. In
such a context interest on securities can be defined as the sum of interest paid or payable for
securities issued by Govt. organizations or securities approved by Govt. or interest on
securities issued by companies or other organizations.

Classification of Securities: Securities can broadly be classified into two groups viz, (1)
Govt. Securities (2) Commercial Securities.

1. Government Securities: Govt. Securities are Promissory notes, Treasury bill, Govt. Stock
Certificate, Bearer bond, Govt. loan document and the like.

This Govt. securities are found to be of two types:

(a) Non-assessable and Tax-free Govt. Securities
(b) Assessable Govt. Securities.
(a) Non-assessable and Tax-free Govt. Securities: Interest on Tax-free Govt. Securities are
non-assessable. In some case Govt. may declare certain securities as tax-free. Interest on these
securities is non-assessable. In such a case this type of securities can be non-assessable and
non-taxable Govt. Securities.

(b) Assessable Govt. Securities-Securities issued by the Govt. & not falling under tax –free
declared securities can be categories as assessable Govt. Securities.

2. Commercial Securities: Commercial securities mean the securities or debenture issued by

local Government (Municipality, Union Parishad or City Corporation), Port Trust or any
commercial company.

These commercial securities can also be classified into two types:

(a) Non-assessable Commercial Securities: Commercial securities approved by the

Securities & Exchange commission if declared non-assessable up to the certain limit will be
treated as non-assessable. Interests in commercial security are now assessable in full. Further,
it may be noted that in Bangladesh there are no non-assessable commercial securities at
present.

(b) Assessable Commercial Securities: Those securities on whose interest is not exempted
by NBR are called assessable commercial securities.

Exclusion from Computation of Total Income under Interest on Securities: The following
items are excluded from the computation of Total Income under Interest on Securities:

Tax -free Govt. Securities as it is treated as non-assessable.

Permissible Deductions from interest on securities (Sec-23)

In computing the income of an assessee under this head, the following deductions are
allowable: -

(i) Bank commission for collecting interest: Bank commission is an admissible (allowable)
allowance, but bank commission for collecting interest on Government securities is not
allowable deductions.

(ii) Interest on borrowed capital for investment: Interest on loan taken specifically for
investment in securities subject to the condition that the interest chargeable to tax under I.T.O
is payable within the taxable territories.
 Specimen Preformat for Computation of Interest on Securities:
Name of the Assess-----------
Income Year----------------------
Assessment Year----------------

Income Under Securities (Sec. 22&23) Tk. Tk.

i) Interest on assessable Government securities, Bond etc. XXXX
ii) Interest on Debenture or other securities of companies or xx
local authorities xx
iii) Trust debenture interest xx

Less: allowable deductions:

i) Bank Commission and Bank charges to realize the interest xx
ii) Interest on loan for investment in securities xx
xx
xx

Notes: Bank commission for buying and selling securities is capital expenditure, so it will not
be deducted here. Tax-free Govt. securities are non -assessable.

Interest on Securities

Problem-1: Following are the particulars of interest on securities received by Mr. Hasan Raja
for the year ended on 30th June 2021.
1. Interest on Tax Free Govt. Securities Tk. 20,000
2. Interest on Port-trust Debenture Tk. 40,000
3. Interest on securities of a private Hospital Tk. 25,000
4. Interest on securities of a Foreign Govt. Tk. 30,000
5. Interest on 15% commercial securities
Face value of securities, approved by SEC Tk.1, 20,000
6. Interest of 8% Govt. securities, value of securities Tk. 1,50,000
7. Interest on 10% commercial securities, payable
half-yearly on 30th June & 31st December
Value of securities (Interest receivable on 30th June yet to be received) Tk.1,00,000
8. Interest on Treasury bill Tk.5000
10% of commercial securities were purchased by bank loan carrying 8% interest. Bank charge
for collection of interest on securities amounted to Tk.1000

Compute income on Interest on securities.

 Solution -1:
Assess: Mr Hasan Raja
Income Year: 2020-2021
Assessment Year: 2021-2022
Computation of income on securities
Particulars Gross Assessable

Interest on Govt. Securities:

1. Interest on Tax-Free Govt. Securities (Exempted in full) 20,000 ---------
2. Interest on 8% Govt. Securities (8% on 1,50,000) 12,000 12000
3. Interest on Treasury Bill 5,000 5,000

Interest on Commercial Securities:

4. Interest on Port-trust-Debenture 40,000 40,000
5. Interest on securities of Pvt. Hospital 25,000 25,000
6. Interest on 15% commercial securities (15% on 1,20,000) 18,000 18,000
7. Interest on 10% commercial securities (10% on
1,00,000=Tk.10,000, half of it) 5,000 5,000
1,05,000
Less:
(i) Interest on Bank loan (8% on 1,00,000) =Tk.8,000 (half of) 4,000
(ii) Bank charge (proportionate amount) 840 4,840
1,00,160
Total Income on Interest on Securities

Notes:
1. Interest on Foreign Govt. Securities will not come under the orbit of “Interest on Securities”.
2. Interest is taxable when it is received. The amount yet to be received will be taxed in a later period
when it will be received.
3. Bank charge is allowed for the interest which comes under the orbit of tax. So, the here
proportionate amount of Tk.1000 has been allowed.
Total Interest=20,000+12,000+5,000+40,000+25,000+18,000+5,000=Tk.1,25,000
Assessable =12,000+5,000+40,000+25,000+18,000+5,000 =Tk.1,05,000
1,05,000
So, proportionate amount=-------------------------- x 1000=Tk.840
1,25,000
Problem-2. From the following particulars compute Income from securities Business and Salaries for
Mr. Abdul Halim for the year ending on 30-06-2020 and show tax to be paid by him:
i) Income from taxable commercial securities (Gross) Tk. 5,500
ii) Interest on 7% tax free Government securities valued at Tk. 25,000
iii) Income from Govt. securities (Gross) Tk. 20,000
iv) Interest on 8% commercial securities valued at Tk. 30,000
v) Interest received from commercial securities Tk. 45,000
vi) Interest on municipal debenture Tk. 35,000
vii) Interest on company debenture (Gross) Tk. 1,35,000
viii) Interest on Treasury bond (Gross) Tk. 10,000

Bank charges amounting to Tk.1000 was paid for collecting interest on 7% tax free Govt. securities
and Company and Municipal Debenture. Company debenture was purchased by taking a bank loan of
Tk.1,00,000@8% interest.
His income from sole trader ship business & income from part time salary from indenting firm
amounted to Tk.4,00,000 and Tk.1,20,000. During the year he purchased share from stock exchange
Tk.50,000 & donated Tk.10,000 to charitable Community Hospital.
Solution:2z

Assess: Mr Abdul Halim

Income Year: 2019-2020
Assessment Year: 2020-2021

Computation of income on securities:

1. Income on Interest of Securities (Sec:22-23) TK. TK.
Assessable
A) Interest on Govt. Securities:
i. Interest on 7% tax free govt. securities valued
Tk (25,000*7%) 1750 ----------
(Non-assessable in full) 20,000 20,000
ii. Income from govt. securities (gross) 10,000 10,000
iii. Interest on treasury bond (gross)

B) Interest on Commercial Securities: 5,500 5500

i. Income from taxable commercial securities
(gross)
ii. Interest on 8% commercial securities valued 2,400 2,400
Tk. (30,000*8%) 45,000 45,000
iii. Interest receives from commercial securities 35,000 35,000
iv. Interest on municipal debenture 1,35,000 1,35,000
v. Interest on company debenture (gross) 2,52,900
Gross income from securities

Less: Allowable Expenses: 990

i) Bank charge (Note-1) 8,000 8,990
(ii) Interest on Bank loan Tk. (8% on 1,00,000) 2,43,910
Taxable income on securities

Other’s income:

2. Computation of Total Taxable Income:

i. Income from sole trader business Tk. 4,00,000

ii. Income from part-time salary Tk. 1,20,000
iii. Taxable Income from securities Tk. 2,43,910
Total Taxable income Tk. 7,63,910
Computation of Tax Credit Income (Investment):

i. Purchased of share from stock exchange Tk. 50,000

ii. Donated (Charitable Community hospital) Tk. 10,000
Actual investment Tk. 60,000

Calculation of Rebate:

Actual investment Tk. 60,000

Or, 25% of total income Tk. (7,63,910*25%) Tk.1,90,977.5

Or, Tk 1, 00, 00,000

Rebate is allowable on the lowest amount of the three i.e.

Tk. 60,000X15%=Tk. 9,000

2. Computation of Tax on total taxable Income Tk. 7,63,910:

On 1st Tk. 3,00,000 Nill

On next Tk. 1,00,000 @5% Tk. 5,000
On next Tk. 3,00,000 @ 10% 30,000
On next Tk. 4,00,000
(Here is on Tk.63,910*15%) Tk. 9,586.5
Gross tax: Tk. 44,586.5
Less: Rebate Tk.9000

Tax to be paid Tk. 35,586.5

Note:1. Bank charge were relevant to interest on 7% tax-free Govt. Security, Company & Municipal
Debenture. But as tax-free Govt. Securities was not considered for tax, proportionate expense on that
will not be allowed. So, the allowable expense will be:

35,000+1,35,000
--------------------------------------------- x 1000= Tk.990
1750+35,000+1,35,000
Problem 3: From the following particulars compute Income from securities Business and Salaries for
Mr. Bashir for the year ending on 30-06-2018 and show tax to be paid by him:
i) Income from taxable commercial securities (Gross) Tk.15,000
ii) Interest on 7% tax free Government securities valued at Tk.30,000
iii) Income from Govt. securities (Gross) Tk.35,000
iv) Interest on 8% commercial securities valued at Tk.40,000
v) Interest receives from commercial securities Tk.55,000
vi) Interest on municipal debenture Tk. 45,000
vii) Interest on company debenture (Gross) Tk. 1, 55,000
viii) Interest on Treasury bond (Gross) Tk.10,000

Bank charges amounting to Tk.1500 was paid for collecting interest on 7% tax-free Govt. securities
and Company and Municipal Debenture. Company debenture was purchased by taking a bank loan of
Tk.1,30,000@8% interest.
His income from sole trader ship business & income from part-time salary from indenting firm
amounted to Tk.5,00,000 and Tk.1,35,000. During the year he purchased share from stock exchange
Tk.70,000 & donated Tk.20,000 to charitable Community Hospital.