Nowadays, most of the business are run using the finance for different purposes and from different sources. Such financing cost has major component in the form of ‘interest’, which can be claimed as a deduction for business expense. However, there may be cases where interest paid on borrowed capital is disallowed by the Assessing Officer on the grounds that the same is not used for business, during the relevant period, etc. and hence it is important to study the provisions of Income Tax law to avoid unforeseen situations.
Definition of “Interest”: Section 2(28A) Income Tax
As per Section 2(28A) of Income Tax Act, 1961, unless the context otherwise requires, the term “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.
Definition of “Interest on securities”: Section 2(28B) Income Tax
As per Section 2(28B) of Income Tax Act, 1961, unless the context otherwise requires, the term “interest on securities” means,-
(i) interest on any security of the Central Government or a State Government;
(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.
interest paid by insurance company due to delay in payment of accident claim.. how to treated this interest receipts? taxable or not