Income from Securities(Sec22-23)

Interest is any sum payable in any manner in

respect of borrowing money, debt
incurred(including deposit, claim or other
obligation) or any credit facility availed-
Section2(38).
In this context interest in securities can be
defined as the sum of interest paid or
payable for securities issued by the
government, companies or other
organizations.
 Conditions for Assessment
-Income must be received as interest,
-the income must be from securities issued by
the government; and
-other than government securities, income must
be received from debentures or securities
issued by the local authorities and companies.
 Excluded Items
• Interest payable on debentures issued by individual,
firms, association, clubs etc,. These will be assessable
under this head but chargeable under section-33(Other
Income)
• Shares of a company can not be “Securities "under this
section. So dividend received from ordinary shares or
from preference share shall not fall under this section.
• Securities issued by foreign government.
• Interest on any amount, claim arising out of the
decision of the court.
• Interest on bank deposit or any such deposit.
 Scope of Income from Securities
The following income should be assessed under
section-22 of ITO 1984 :
a)Interest receivable on any security of the
Government or approved by the Government
by the assessee.
b)Interest receivable on debenture or other
securities issued by the local authority or
company.
 Classification of Securities
Government Securities: These are the securities issued by the
Bangladesh government.
1.Non Assessable and Tax free Securities: These are the securities
issued by the government for which no tax is paid hence it is
declared as tax free i.e. wage earners development bonds, national
bond, treasury bill , US dollar premium bond etc.
2.Less tax :These are the securities on which tax is ,deducted at source
at specified rate. These are the securities where tax is deducted at
source.
Commercial Securities
1.Approved commercial Securities: These are the commercial
securities/debentures approved by the SEC.
2.Unapproved commercial Securities.
3.Zero coupon bonds: Totally exempt of taxes.
 Grossing Up
• Interest x100
100-interest rate
Admissible Expenses:
1.Bank Commission
2.Interest on borrowed capital for invested
securities
 Ex dividend and Cum dividend
• Ex dividend: When securities are sold only
capital value not along with interest then it is
called ex dividend securities
• When securities are sold with capital value
and along with interest computed at last day
of payment to the sale date is called cum
dividend securities. The purchaser is
assessable.
 Bond Washing
• Securities are sold cum interest with an
agreement to re sell or retransfer the
securities with a view to avoiding tax .
Sometimes , securities are sold to a person
whose income is less than the minimum
taxable limit and then he need to pay any tax
on interest on securities since his income is
less than the taxable limit . If this practice are
identified by the NBR then the seller or legal
owner will be responsible to pay tax on the
securities
 Problem:1
Following are the particulars of interest on Securities received by Mr.Abul
Kalam Azad for the year ended 30th June, 2014.
• Interest on tax free government securities TK.20,000
• Interest on Port Trust Debentures TK.40,000
• Interest on Securities of a private hospital TK.25,000
• Interest on securities of a foreign government TK.30,000
• Interest on 15% commercial securities, face value of securities approved
by SEC TK.120, 000.
• Interest of 8% govt. securities, value of securities is TK150, 000.
• Interest on 10% commercial securities, payable half yearly on 30th June
and 31st December, value of securities(Interest receivable on 30th June
yet to be received)TK.100,000
• Interest on Treasury bill TK.5000.
• 10% commercial securities were purchased by bank carrying 8% interest.
Bank charge for collection on interest on securities amounted to
TK.1000.
• Compute income on interest on securities.
 Problem-2
On 1st Jan-2014 Mr.Sohel has the following investments:
• 10%,80,000 Company debenture
• 8%,100,000 tax free treasury bonds
• 12% ,25,000 port trust debenture
• 12.5%,50,000 government securities
• On 30th June, 2014 Mr.Sohel sold 40,000, 10% company
debenture with which he purchased 8%, 40,000 Commercial
Securities. He took 20,000 bank loans to buy 12.5%
government securities at a rate of 10%.The bank commission
for the purchase and sale of securities amounted to 100.He
also paid Tk.200 as bank charge for collecting interest.
• Calculate income from securities of Mr.Sohel.
Problem-3.
• From the following particulars compute income form securities
form Mr. Ashraf for the year ending on 30-06-14.
• Income from taxable commercial securities (Gross) Tk.5,500
• Interest on 7% tax free government Securities valued at TK.25,000
• Income from government securities(Gross) Tk.20,000
• Interest on 8% commercial securities valued at Tk.30,000
• Interest received from commercial securities Tk.45,000
• Interest on Municipal debenture Tk.35,000
• Interest on Company debenture(Gross) TK.135,000
• Interest on Treasury bond (Gross)Tk.10,000
• Bank Charges Amounting to TK.1,000 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 on TK100,000 @8% interest.