Interest Tax Act-Clarification with respect to taxability of interest from debentures. - Income Tax - 1923/1995

INSTRUCTION NO. 1923/1995 Dated: March 14, 1995 Interest-tax Act, 1974, was last revived with effect from 1-10-1991. Some credit institutions have sought clarification as to whether interest received on debentures, etc. is subject to interest tax under the present provisions of the Act. Such interest was not subject to interest-tax under the earlier version of the act. 2. The latest version of the Act covers larger tax base than the earlier one as the definition of 'interest' now, is wider in scope. Section 2(7) of the interest-tax Act now defines 'interest' as under: '(7) "interest" means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India. but does not include- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills;' In the earlier version of interest-tax Act, any amount chargeable to income-tax, under the Income-tax Act, under the head 'Interest on Securities' was specifically excluded. 3. The Board have been advised that by not incorporating such exclusionary provision in the present version of the interest-tax Act, the natural meaning of the word 'interest' as defined in section 2(7) of the Act will have to be given effect. Therefore, interest on debentures, bonds, securities etc, is exigible to interest-tax. 4. The above clarification may be brought to the notice of all officers working in your jurisdiction.