Banks are required to maintain a Statutory Liquidity Ratio (SLR) ...

Banks' broken period interest deduction hinges on securities' intent - stock trading or investment.

Case Laws     Income Tax

October 18, 2024

Banks are required to maintain a Statutory Liquidity Ratio (SLR) by purchasing government securities. RBI guidelines categorize securities as Held-to-Maturity (HTM), Available-for-Sale (AFS), and Held-for-Trading (HFT). For AFS and HFT securities, the broken period interest paid during acquisition is allowed as a deduction, as these are treated as stock-in-trade. However, for HTM securities, the treatment depends on whether they are held as investments or stock-in-trade, based on the facts of each case. If held as investments, the broken period interest is capitalized; if held as stock-in-trade, it is allowed as a deduction. The Supreme Court upheld the Tribunal's decision that when securities are treated as stock-in-trade, the broken period interest cannot be considered capital expenditure and must be allowed as a deduction. The court clarified that the benefit of deduction is available for securities held as trading assets but not for those held as investments.

View Source