Interest on securities

y Interest on Securities includes any Interest earned on following securities:

a. Securities issued by Central/ State Govt. b. Debentures/ Bonds issued by a Local Authority/ Companies/ Corporation
established by a Central/ State/ Provincial Act. y The Interest so earned is chargeable to tax on either on Receipt/ Accrual if books are maintained as per cash basis or due basis respectively. However Interest received on following securities has been specifically exempted from tax u/s 10(15) under Indian Income Tax law as amended till AY 2008-09. Amount Exempt As Notified Full Full Full Full Full Full Full Full Full Full

S No. 1 2 3 4 5 6 7 8 9 10 11

Type of Security Interest on Notified Securities Interest on 7% Capital investments bonds to Individuals/ HUF. Interest received by a Non resident from notified bonds Interest on notified relief bonds to Individuals/ HUF. Interest on notified bonds/ debentures of notified Public Sector Cos. Interest on deposit made by a retired government/ public sector co. employee out of money received on retirement. Interest on securities held by the Welfare commissioner, Bhopal Gas Victims. Interest on deposits for welfare of victims of Bhopal Gas Leak disaster with RBI/ Public sector Bank. Interest on Gold deposit bonds issued under the Gold Deposit Scheme 1999. Interest on notified issued by a local authority. Interest on Bonds specified by Central govt. by notification in Official Gazette.

Are you in the course of doing a BOND WASHING TRANSACTION? o Bond Washing Transactions refers to selling of a security immediately before the due date for accrual/ receipt of Interest by its holder to a friend/ relative and acquiring back the same (or similar) securities after the due date of Interest is over.

o This Practice is generally adopted by High Income Class assessees to EVADE Tax, by transferring such securities to a Low Income Class assessee. o Hence in order to prevent such transactions Income Tax Act has a specific provision to this regard [Sec 94(1)], which sees to the fact that in case of Bond Washing Transactions the person transferring such security is taxed instead of the one who is shown as the purchaser of the security. y Loss arising from Purchase/ Sale of Securities not allowed in certain cases [Section 94(7)], Where:a) Any person buys or acquires any securities or unit within a period of THREE months prior to the Record Date, i.e., the date fixed by Companies/ Mutual Fund for the entitlement of the holder to receive Dividend/ Income; b) Such person transfers such securities within a period of NINE months after such record date; c) The Dividend or Income on such Securities/ Unit received or receivable by such person is EXEMPTED, Then the loss arising on account of such transfer of securities is not allowable as claimable loss, subject to the fact that such loss does not exceed the amount of dividend/ income entitled to, on such securities. Also it must be noted that a person to qualify under this section must satisfy all the three conditions simultaneously. y Deductible Expenses from Interest on Securities: a) Collection Charges/ Remuneration/ Commission to a Banker/ Any other Person for realization of such Interest. b) Interest on Loan taken for such Investment in Securities to earn Interest. c) Any other expenditure not of Capital nature and should be incurred wholly & exclusively for earning such Income.