Interest income is one of the most common source of income for general public.
Let us discuss exempt interest incomes in this article. The following interest
incomes due to an assessee are exempt from tax:
(a)
by Government or a local authority on money borrowed by it from sources outside
(b)
by an industrial undertaking in India on money borrowed by it from such
financial India institution in a foreign country as is approved in this behalf
by the Central Government;
(c)
by an industrial undertaking in India on any moneys borrowed or debt incurred
in a foreign country in respect of its purchase outside India of raw materials
or components, plant or machinery, to the extent of amount calculated at the
rate approved by the Central Government in this behalf,
(d)
by the Industrial Finance Corporation of India established by the Industrial
Finance Corporation Act, 1948 or the Industrial Development Bank of India
established under the Industrial Development Bank of India Act, 1964 or Export
Import Bank of India, or the National Housing Bank or the Small Industries
Development Bank of India : or the Industrial Credit and Investment Corporation
of India (a company formed and registered under the Indian Companies Act, 1956)
on any money borrowed by it from sources outside India, to the extent to which
such interest does not exceed the amount of interest calculated at the rate
approved by the Central Government in this behalf, having regard to the terms
of the loan and its repayment;
(e)
by any other financial institution established in India or a banking company to
which the Banking Regulation Act, 1940 applies (including bank or banking
institution referred to in Section 51 of that Act), on any moneys borrowed by
it from sources outside India under a loan agreement approved by the Central
Government where the moneys are borrowed either for the purpose of advancing
loans to industrial undertakings in India for purchase outside India of raw
materials or capital plant and machinery or for the purpose of importing any
goods which the Central Government may consider necessary to import in the
public interest to the extent to which such interest does not exceed the amount
of interest calculated at the rate approved by the Central Government in this
behalf, having regard to the terms of the loan and its repayment:
By
an industrial undertaking in India on any moneys borrowed by it in foreign
currency from sources outside India under approved loan agreement. The loan
agreement is to be approved by the Central Government of India before 1-6-2003.
The exempted rate of interest is also to be fixed by the Central Government
having regard to the terms of the loan and its repayment For the purposes of
this sub-clause, the expression "Industrial undertaking" means any
undertaking which is engaged in
(a)
the manufacture or processing of goods; or
(b)
the business of generation or distribution of electricity or any other form of
power;
(ba)
the business of providing telecommunication services;
(c)
mining; or
(d)
the construction of ships; or
(e)
the operation of ships or aircrafts or construction or operation of rail
systems.
(f)
by a schedule bank on deposits in foreign currency where the acceptance of such
deposits by the bank is approved by Reserve Bank of India.
(g)
by a public company whose main object is of carrying on the business of
providing long-term finance for construction or purchase of houses in India for
residential houses. on any money borrowed by it in foreign currency from
outside India upto the rate prescribed by Govt.
For
exemption u/s 10(15)(iv) (g) the term interest shall not include interest paid
on delayed payment of loan or in default.
(a)
issued by a local authority; and
(b)
specified by the Central Govt. by notification in the official Gazette.