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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Debt Products

Meera, a resident individual in the 30% tax bracket (ignore surcharge and cess), invested Rs 5,00,000 in a listed, non-convertible debenture of an Indian company carrying 9% annual interest, paid yearly. The debenture is held for the full year and she has no other income from it. Assuming no TDS considerations, what is the tax payable by Meera on the interest for the year, and under which head is it taxed?

The interest is Rs 45,000 (9% of Rs 5,00,000), taxed as Income from Other Sources at the investor's slab rate of 30%, giving tax of Rs 13,500. The business income head applies only when securities are held as stock-in-trade, which is not the case here.

  1. ARs 13,500 under the head Income from Other SourcesCorrect
  2. BRs 13,500 under the head Profits and Gains of Business or Profession
  3. CRs 45,000 under the head Income from Other Sources
  4. DRs 4,500 under the head Income from Other Sources

Explanation

Interest = 9% of Rs 5,00,000 = Rs 45,000. For an individual investor, debenture interest is taxed as Income from Other Sources at the slab rate. Tax = 30% of 45,000 = Rs 13,500. Rs 45,000 is the interest itself, not the tax, and the business head applies only if the debenture is held as business stock-in-trade.

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