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Treatment of interest on tax-oriented investments

Investments in bonds prescribed under Sec. 54EC qualify for abatement of tax on capital gains. Interest from such bonds is, however, taxable. Sec. 10(15)(iib) exempts only Capital Investment Bonds, which have been notified by the Government. Bonds referred by the reader are not Capital Investment Bonds nor are they notified for such exemption. In fact, the power of notification of such bonds has also been taken away from June 1, 2002.

Similar information is required by readers as to whether there is exemption or deduction under Sec. 80C for interest on deposits under Senior Citizens Savings Scheme. The fact that the contribution is considered for deduction under Sec. 80C does not mean that the income therefrom is exempt or is otherwise available for deduction under Sec. 80C. An exception has been made only in respect of National Savings Certificates by the Departmental instruction permitting the accumulated interest of the year, which cannot be drawn, to be treated as reinvestment in the same scheme, so as to qualify for deduction under Sec. 80C. Income from interest from PPF is, however, exempt. Barring these exceptions, it can be taken that the normal rule is that all interest from any bond or deposit is taxable, except where they are tax-free bonds.

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