Fundamentals of Taxation

Definition Interest on Securities

Section 22 & 23

Sec. 22 of the Ordinance

The following income of an assessee shall
be classified and computed under the head
“Interest on Securities ” namely
(a). interest received by the assessee on any
security of the Government ; and
(b). interest received by him on debentures or
other securities of money issued by or on
behalf of a local authority or a company.
Fundamentals of Taxation
Interest on Securities Section 22 & 23
Scope of the Section

This section deals with interest on securities issued by (a)

Government, (b) a local authority and © a company.
Debentures or other securities for money issued by a
local authority or a company fall within this section. All other
securities ,e.g. securities issued by a foreign Government
are outside the ambit of this section, and interest thereon
will be charged under Sec.28(income from business or
Profession) or under Sec. 33 (income from other sources)
Central Exchange Bank Ltd. V. C.I.T [1955] 27 I.T.R. 167
Shares of a company can not be called securities for money.
Dividends on shares are taxable under Sec. 33(Income from
other sources)
Fundamentals of Taxation
Interest on Securities Section 22 & 23
Securities held as trading assets

Interest on securities is a separate head of charge.

Even if the securities are held as trading assets or
dealt with in course of business by financial institutions
like bankers of dealer of securities, the interest earned
must be assessed under the provisions of this section
(interest on securities) not undeSec.28 (income from
business or profession) or under Sec. 33 (income from
other sources)
Supreme Court of India. United Commercial Bank Ltd.V
C.I.T.[1957]32 I.T.R.688
Fundamentals of Taxation
Interest on Securities Section 22 & 23
Permissible Deductions

As per provisions of Sec. 22 of the Income Tax Ordinance,

1984 any Income derived from Bonds and/ or Securities(T&T
Bond, National Investment Bond, Treasury Bond/Bill etc.)
Interest received from Debenture, Savings Instruments
issued by National Savings Bureau, to be shown as Interest
on Securities. Normally, interest paid on Loan borrowed
absolutely for procuring the Securities is deductable from
the Income. Income under this head which is subject to the
Provisions of Sec, 82C will not be subject to such deduction.
During Assessment Year 2016-17, amount of Tax Deducted
at Source shall be considered as Final Satisfaction of
Minimum Tax Liability.
Fundamentals of Taxation
Interest on Securities Section 22 & 23
Permissible Deductions
Collection charges: charges paid by an assessee for collection of
interest, generally paid to bank for commisson and or bank charges
can be claimed by thee assessee as charge against the income
earned but not the expenses incurred by an assessee for self
collection.
United Commercial Bank Ltd. V. C.I.T.[1953]24 I.T.R. 425
Interest on money borrowed for investment : The interest (paidor
accrued) on the amount borrowed specifically for investment in
securities is chargeable against the income earned from that
particular security. In case of borrowing made for business and not
specifically for investment in securities , even if a certain portion
of such borrowing is invested in securities, no deduction can be
claimed under this section.
Indian Steamship Co. Ltd. V C.I.T. [1953] 24 I.T.R. 448
Fundamentals of Taxation
Definition Income from House Property
Section 24 & 25

Section 24 of the Ordinance

Income out of the annual value of any
property consisting of any building and
lands appurtenant thereto of which
assessee is the owner, other than such
portion(s) of the property as the
assessee may occupy for the purpose of
any business or profession carried by
the assessee, is assessable under the
head “Income from house property”
Fundamentals of Taxation
Income from House Property
Section 24 & 25

House property : The provisions of

this section are confined to building and
land appurtenant thereto. Income from
any land not appurtenant to building is
subject to be assessed under the
provisions of section 33 (Income from
other sources)
Fundamentals of Taxation
Income from House Property
Section 24 & 25

Annual value: Under the provisions of sec.24, the annual

value of property is subject to tax. Sec,2(3) of the
Ordinance defined annual value as “ the sum for which the
property might reasonably be expected to let from year to
year” i.e. the amount at which the landlord could let the
premises considering all the prevailing circumstances such
as the locality, availability of civic facilities etc.
In case where the actual rent is more than the annual value,
in that case the actual rent shall be considered as annual
vale.
To summarise, the basis of assessment is “ actual rent or
annual value which ever is higher”
Fundamentals of Taxation
Income from House Property
Section 24 & 25 Allowable Deductions (Section-25)

As per the provisions of sec.25 of the act, the following

deductions are allowable in the determination of income
from house property
1. In respect of expenditure for repairs, collection of rent,
water & sewerage, electricity, salary of watchmen,
pumpman, caretaker, liftmen and all other expenditures
for maintenance and provision of basic services
- when the building is used for residential purpose,
25% of the annual value
- when the building is used for commercial purpose,
30% of the annual value
Fundamentals of Taxation
Income from House Property
Section 24 & 25 Allowable Deductions (Section-25)

2. Premium paid to insure the building to cover the risk of damage

and destruction.
3. Interest on loan taken for construction, re-construction,
renovation of the building
4. Annual taxes payable to any legal authority not being a capital
charge.
5. Ground rent
6. Amount payable to government for land development or rent
payable on the land appurtenant to building
7. Proportionate vacancy allowance
8. Interest payable during construction to be allowed over first
three years during which income from the said property is

assessable .