Interest on Securities [Sec. 92(2)(e)]

Under Section 92(2)(e) of the Income-tax Act, 2025, interest on securities is chargeable under the head “Income from Other Sources” where it is not taxable as business income. It generally represents interest earned by an assessee from investments in Government securities, bonds, debentures and other interest-bearing securities. Such interest is included in taxable income according to the applicable provisions and method of accounting. The tax treatment depends upon the nature of security, ownership and character of investment.

1. Meaning of Interest on Securities

Interest on securities refers to interest income earned by an assessee from investments in specified securities issued by the Government, companies or other entities. It may include interest on Government securities, bonds, debentures and similar debt instruments. Where such securities are held as investments and the interest is not taxable under the head profits and gains of business or profession, the income is generally chargeable under “Income from Other Sources.” The amount taxable is determined according to the applicable provisions of the Income-tax Act, 2025. Thus, interest on securities constitutes an important category of investment income taxable in the hands of the recipient.

2. Government Securities

Interest received from Government securities represents income earned on securities issued by the Central Government, State Governments or other eligible governmental authorities. Such securities may carry a fixed or otherwise specified rate of interest payable periodically to the holder. Where the securities are held as investments, and the interest is not chargeable as business income, the amount is taxable under Income from Other Sources in accordance with Section 92(2)(e). The taxable amount is determined according to the applicable accounting and tax provisions. Government securities are generally regarded as debt instruments, and the interest earned by the holder constitutes taxable income unless specifically exempted.

3. Interest on Debentures

Debentures are debt instruments generally issued by companies or other entities for raising borrowed funds. The issuer pays interest to debenture holders at the rate and intervals specified in the terms of issue. Where an assessee holds debentures as an investment, the interest received or receivable is generally chargeable under the head Income from Other Sources, provided it is not taxable as business income. The taxable amount is determined according to the applicable provisions and the assessee’s recognised method of accounting. Interest on debentures is distinct from dividend because the holder is a creditor of the issuer, rather than an owner merely by holding debentures.

4. Interest on Bonds

Interest earned from bonds is another important form of interest income covered by the provisions relating to securities. Bonds may be issued by governments, companies, financial institutions or other authorised entities to raise borrowed funds. The bondholder normally receives interest according to the rate and payment terms attached to the instrument. Where bonds are held as investments, and the interest does not constitute business income, such interest is generally taxable under Income from Other Sources. The amount chargeable to tax depends upon the terms of the bond and applicable provisions. Any specific exemption or special treatment available under the Act is separately considered.

5. Basis of Taxability

Interest on securities is taxable according to the applicable provisions governing Income from Other Sources and the recognised method of accounting. Depending upon the circumstances, income may be considered on the basis of interest received or accrued during the relevant tax year. Where securities constitute stock-in-trade of a business, the interest may instead be taxable under profits and gains of business or profession. Therefore, the purpose and manner in which securities are held are important for determining the appropriate head of income. Any deduction specifically permitted in computing such income may be claimed, while expenditure not authorised by the Act remains inadmissible for tax purposes.

Computation of Interest on Securities [Section 92(2)(e)]:

Interest on securities taxable under Income from Other Sources may be computed as follows:

illustration

Suppose an assessee earns ₹60,000 as gross interest on securities and eligible expenditure allowable under the Act is ₹5,000.

Therefore, ₹55,000 will be included under the head “Income from Other Sources”, assuming the stated ₹5,000 expenditure qualifies for deduction under the applicable provisions.