Interest, Premium or Bonus on Specified Investments [Section 10(15)]

Exempted Incomes-Section 10(15)

The tax treatment of interest, premium, or bonus on specified investments is governed by Section 10(15) of the Income Tax Act, 1961. This section provides exemption from income tax for interest, premium, or bonus received on certain types of investments.:

The following types of interest, premium, or bonus on specified investments are exempt from income tax under Section 10(15) of the Income Tax Act, 1961:

  • Interest on notified bonds, debentures, and securities.
  • Interest on notified savings certificates.
  • Interest on deposits made with notified public sector companies.
  • Interest on deposits made with notified housing finance companies.
  • Interest on deposits made with notified banks and cooperatives.
  • Bonus received on notified units of mutual funds.
  • Premium received on redemption of notified bonds, debentures, and securities.

The exemption under Section 10(15) is available to all taxpayers, including individuals, Hindu undivided families (HUFs), companies, and partnerships.

Interest incomes which are exempt under section 10(15) could be explained with the help of the following table-

 

Section Income Exemption to
10(15)(i) Interest, premium on redemption, or other payment on notified securities, bonds, certificates, and deposits, etc. (subject to notified conditions and limits) All assesses
10(15)(iib) Interest on notified Capital Investment Bonds notified prior to 1-6-2002 Individual/HUF
10(15)(iic) Interest on notified Relief Bonds Individual/HUF
10(15)(iid) Interest on notified bonds (notified prior to 1-6-2002) purchased in foreign exchange (subject to certain conditions) Individual – NRI/ nominee or survivor of NRI / individual to whom bonds have been gifted by NRI
10(15)(iii) Interest on securities Issue Department of Central Bank of Ceylon
10(15)(iiia) Interest on deposits made with scheduled bank with approval of RBI Bank incorporated
Abroad
10(15)(iiib) Interest payable to Nordic Investment Bank Nordic Investment Bank
10(15)(iiic) 10(15)(iiic) Interest payable to the European Investment Bank on loan granted by it in pursuance of framework agreement dated 25-11-1993 for financial corporation between Central Government and that bank European Investment bank
10(15)(iv)(a) Interest received from Government or from local authority on moneys lent to it before 1-6-2001 or debts owed by it before 1-6-2001, from sources outside India All assessees who have lent money, etc., from sources outside India
10(15)(iv)(b) Interest received from industrial undertaking in India on moneys lent to it under a loan agreement entered into before 1-6-2001 Approved foreign financial institution
10(15)(iv)(c) Interest at approved rate received from Indian industrial undertaking on moneys lent or debt incurred before 1-6-2001 in a foreign country in respect of purchase outside India of raw materials, components or capital plant and machinery, subject to certain limits and conditions All assessees who have lent such money, or in favour of whom such debt has been incurred
10(15)(iv)(d) Interest received at approved rate from specified financial institutions in India on moneys lent from sources outside India before 1-6-2001 All assessees who have lent such moneys
10(15)(iv)(e) Interest received at approved rate from other Indian financial institutions or banks on moneys lent for specified purposes from sources outside India before 1-6-2001 under approved loan agreement All assessees who have lent such moneys
10(15)(iv)(f) Interest received at approved rate from Indian industrial undertaking on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2001 All assessees who have lent such moneys
10(15)(iv)(fa) Interest payable by scheduled bank, on deposits in foreign currency when acceptance of such deposits by bank is approved by RBI Non-resident or individual/HUF who is not ordinarily resident in India
10(15)( iv)(g) Interest received at approved rate, from Indian public companies eligible for deduction under section 36(1)(viii) and formed with main object of providing long-term housing finance, on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2003 All assessees who have lent such moneys
10(15)( iv)(h) Interest received from any public sector company in respect of notified bonds or debentures and subject to certain conditions All assesses
10(15)( iv)(i) Interest received from Government on deposits in notified scheme out of moneys due on account of retirement Individual –Employee of Central Government/ State Government/Public sector company
10(15)(v) Interest on securities held in Reserve Bank’s SGL A/c No. SL/DH-048 and Deposits made after 31-3-1994 for benefit of victims of Bhopal Gas Leak Disaster held in such account with RBI or with notified public sector bank Welfare Commissioner, Bhopal Gas Victims, Bhopal
10(15)(vi) Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 All assesses
10(15)(vii) 10(15)(vii) Interest on notified bonds issued by a local authority/State Pooled Finance Entity All assesses
10(15)(viii) Interest on deposit made on or after 1-4-2005 in an Offshore Banking Unit referred to in section 2(u) of the Special Economic Zones Act, 2005 Non-resident or person who is not ordinarily resident

Examples of Investments Scheme that qualify for the Exemption under Section 10(15):

To be eligible for the exemption, the investment must be made in a specified investment scheme that has been notified by the Central Government. The Central Government has notified a number of investment schemes under Section 10(15), including:

  • National Savings Certificate (NSC)
  • Kisan Vikas Patra (KVP)
  • Post Office Savings Account (POSA)
  • Public Provident Fund (PPF)
  • Senior Citizen Savings Scheme (SCSS)
  • Sukanya Samriddhi Yojana (SSY)
  • Pradhan Mantri Vaya Vandana Yojana (PMVVY)
  • Atal Pension Yojana (APY)
  • National Pension System (NPS)
  • Rajiv Gandhi Equity Savings Scheme (RGESS)
  • Tax Saving Fixed Deposit (FD)
See also  Annual value of one ‘Palace’ of the Ex-Ruler [Section 10(19A)]

Benefits of investing in Specified investments

Here are some of the benefits of investing in specified investments that qualify for exemption under Section 10(15):

Tax-free income:        The interest, premium or bonus earned on specified investments is exempt from income tax. This can help you to save tax and increase your overall wealth.

Safe and secure investments:            Specified investments are generally considered to be safe and secure. This is because they are issued by the government or by government-backed institutions.

Attractive returns:     Specified investments typically offer attractive returns. This can help you to achieve your financial goals faster.

Examples of Exemptions:

Here are some examples of how the exemption under Section 10(15) works:

Example 1:      Suppose you invest ₹10 lakh in a notified bond that offers an interest rate of 8% per annum. You will earn an interest income of ₹8,000 per annum, which is exempt from income tax under Section 10(15).

Example 2:      Suppose you invest ₹5 lakh in a Gold Deposit Bond. You will earn an interest income of 2.5% per annum, which is exempt from income tax under Section 10(15).

Example 3:      Suppose you invest ₹2 lakh in a bond issued by a local authority. You will earn an interest income of 7% per annum, which is exempt from income tax under Section 10(15).

Points to be Note:

  1. The exemption under Section 10(15) is available only for interest, premium, or bonus on specified investments. Interest income from other sources, such as bank deposits and savings accounts, is taxable.
  2. The exemption under Section 10(15) is available to all taxpayers, including individuals, HUFs, companies, and partnerships.
  3. The Central Government notifies new schemes under Section 10(15) from time to time. Taxpayers should check the Central Government’s website for the latest list of notified schemes.
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