Interest on Securities

(AY 2015-16)

Key Words / Outline

Issues Covered:

Regulatory Framework
Scope of Interest on Security: u/s 22
Deductions from Interest on Security: u/s 23
TDS & Grossing-up of Interest net of TDS: U/S 51
Non-Assessable Income in respect of Interest on
Security
Investment Allowance Items relating to Securities
Examples of Interest on SecurityAssessment

 Interest on Securities:
Framework

Regulatory

Sections

22, 23, 109, 106

Subsections of sec. 2: (15), (30),
(38)
TDS (Tax Deducted at Source):
[common sections 48 & 49], 51

Rules

12 [u/s 49]

Schedules
Sixth Schedule: Part A Para-24, 40
Sixth Schedule: Part B Para-10, Para-27, Para-28

Criterion for Considering Income under Interest on Securities

Conditions of treating any income under the head

Interest on Securities:
Income must be identified as interest
Income must be on securities

Outside the scope of this head of income:

Interest income on Government Savings Instrument
(Sanchaypatra) under the head Income from other sources
[TDS u/s 52D @ 5%; except if (i) the savings instrument is purchased by an
approved superannuation fund or pension fund or gratuity fund or a recognized
provident fund, or a workers profit participation fund; (ii) the cumulative
investment at income year-end in the pensioners savings certificate or wage
earners development bond does not exceed Tk 5 lakh. TDS is final discharge of
tax liability from AY2015-16; FA 2015]

Dividend income on share/stock or discount income on bond

under the head Income from other sources
Interest income on loan given under the head Income from
other sources
[Note: Above incomes may be classified as Income from Business or
Profession for banks and financial institutions.]

Scope of INTEREST ON SECURITIES: Sec. 22

i. Interest on any Government security

or any security approved by
Government, and
ii. Interest on debenture or other
security of money issued by or on
behalf of a local authority or a
company.

Deductions from Interest on Security: u/s 23

i) Banks commission or charges on realisation of
the interest [u/s 23(1)(a)]
ii) Interest expense on money borrowed for
investment in the securities [u/s 23(1)(b)]
Limitations on deduction:

No allowance or deduction shall be made on account

of banks commission or charges, or interest expense
in respect of, or allocable to tax-exempted Government
security [Proviso to section 23(1)].
No deduction in respect of interest expense shall be
allowed, if it is payable outside Bangladesh but tax has
not been deducted or collected at source under
sections 49(1)(g) & 56 and rule 12 [vide u/s 23(2) ].

TDS from Interest on Securities & Grossing-up

Tax Deduction at Source (TDS) from Interest on Securities: Sec. 51
Interest on security is subject to tax deducted at source (TDS) under
the provisions of sections 49(1)(b), and 51 and rule 11. As per
provision of section 51, TDS on interest on security of the
Government, or security approved by the Government, unless the
Government otherwise directs shall be at 5% upfront. But no TDS will
be applicable on treasury bill/treasury bond issued by Govt. from
FY2015-16; FA2015.
Under section 48(2), TDS shall be deemed to be the income received
by the assessee and it shall be treated as payment of tax in due time
by the assessee. So, interest on security net of tax or tax-deducted
interest has to be grossed-up.
Formula for Grossing-up
Gross Interest = (Interest net of tax) / (1 Rate of TDS)

Non-asssessable Income regarding Interest on Securities

Sixth Schedule, Part-A:
Para-24: Interest on tax-free Government security, if any (totally exempted).
Para-40: Any income derived from Zero Coupon Bond received by a person other than
Bank, Insurance or any Financial Institution

Classification of Securities for Computation of

Interest on Security
Major
Classification

SubTDS & requirement of grossing-up

classification

Non-assessable limit

Tax-free
Government Govt
Security:
securities
u/s 22(a)

Subject to no TDS & no Totally non-assessable,

grossing-up required.
if issued with the
condition that interest
thereon shall not be
liable to tax [Para-24,
Sixth Schedule, Part-A].

Taxable
other
securities

Subject to TDS & grossing-up Totally assessable, i.e.,

required only if interest net of no non-assessable limit.
tax given.
TDS at 5% upfront, except for
Treasury Bill/Bond from
FY2015-16 [sec. 51]

Non-Govt.
Security
Other
(issued by a
Securities
local authority of Money
or a company):
u/s 22(a)

Subject to TDS at 5% if the Totally assessable, i.e.,

security is approved by the no non-assessable limit.
Government
[sec.
51]
and
grossing-up required only if
interest net of tax given.

Investment Allowance Items: Part B, Sixth Schedule

Example: Computation of income under the

head Interest on Securities
Facts:
Mr. X (age 45 years) has purchased the following securities on which he
earned the income mentioned below:
a)Gross interest on 3-month Development Bond (purchased in August
2014 and matured in November 2014): Taka 100,000 (tax deducted at
source @ 5% upfront) [Purchased Development Bond of Taka 4,000,000
with an interest rate of 10% per annum, with cash payment of Taka
4,005,000 including upfront tax, and received Taka 4,100,000].
b)Interest on Government bond Taka 190,000 (after deduction of tax @
5%)
c)Interest on debenture Taka 75,000;
Following were the expenses to earn the above income:
Bank collection charge Taka 12,000
Interest on borrowed capital Taka 6,000.

Required:
Compute the income under the head Interest on securities.

Example: Computation of income under the

head Interest on Securities
Solution: Computation of Interest on Securities
Particulars
Interest on Securities: u/s 22
Interest on Development Bond (gross)
Interest on Government bond [190,000/(1-5%)]
Interest on debenture
Gross income under Interest on Securities
Less: Allowable deductions u/s 23
Bank collection charge
Interest on borrowed capital
Income under the head Interest on Securities
Total Income
On other income: Taka 357,000
On first Taka 250,000
On next Taka 107,000
Gross Tax on Taka 357,000
Less: TDS u/s 51 [5,000+10,000]
Net tax payable/(refundable)

Tax Rate
10%

Taka
100,000
200,000

12,000
6,000

Taka

300,000
75,000
375,000
18,000
357,000

Amount of Tax
Nil
10,700
10,700
15,000
(4,300)

Questions??