Taxability of Interest on Securities under Section 56(2) (id) as “Income from Other Sources”

1. Scope of Section 56(2)(id)

This provision covers interest income from securities when:

• Not chargeable under “Profits and Gains of Business or Profession” (PGBP)
• Not exempt under any other provision of the Income Tax Act

Includes:

• Government bonds (e.g., RBI bonds, SDLs)
• Debentures (listed/unlisted)
• Corporate bonds
• Other marketable securities

2. Tax Treatment

• Taxable at Normal Slab Rates(5%-30% + 4% cess)
• No TDSif interest ≤ ₹5,000 (₹40,000 for senior citizens) under Section 193
• TDS @ 10%if interest exceeds threshold

3. Key Exemptions

• Tax-free bonds(e.g., NHAI, IRFC bonds – exempt under Section 10(15))
• Interest on PPF/Senior Citizen Savings Scheme(exempt under Section 80C/80TTB)

4. Deductions Allowed

• Interest Expense Deduction: Up to 20% of interest income under Section 57(iii)
• Collection Charges: Bank charges for collecting interest

5. Reporting Requirements

• ITR Filing: Report under Schedule OS
• TDS Credit: Claim via Form 26AS

6. Example

Mr. A earns ₹50,000 interest from corporate bonds:

• Taxable Income: ₹50,000
• TDS (if deducted): ₹5,000 (10%)
• Net Tax Liability: Slab rate on ₹50,000

7. Special Cases

• Zero-Coupon Bonds: Taxable on accrual basis
• Deep Discount Bonds: Interest calculated as difference between redemption & purchase price

Note: Always verify security-wise tax treatment as exemptions vary. For complex cases (e.g., sovereign gold bonds), consult a tax expert.