The circular is about the banking business
CBDT Circular 18/2015 dated 2 November 2015 addresses interest from banks’ non-SLR securities. It accepts the principle that investments of a banking concern form part of banking business and that the associated income is attributable to that business. Paragraph 3.2 expressly applies the principle to all banks/commercial banks to which the Banking Regulation Act, 1949 applies. An ordinary investment company should not adopt that bank-specific conclusion solely because it holds the same security.
Read the applicable text: CBDT Circular 18/2015 Income Tax Department transition guidance.
Understand the disputed classification
The circular records the view taken by field officers that non-SLR interest was other-source income with related expense consequences under section 57(i). The relevant statutory provision is section 56(2)(id): interest on securities falls under income from other sources where it is not chargeable as business income. Paragraph 2 of the circular misidentifies the subsection as (1). The circular’s conclusion therefore matters to the correct head and the rationale for that ground of disallowance; it is not a declaration that every expense booked by a bank is deductible.
Build the bank and security population
Confirm the taxpayer’s banking status and applicable regulation, identify securities and reconcile SLR/non-SLR classifications with the investment records. Preserve issuer, instrument, principal, contractual coupon, dates, accrued interest and receipts. Do not mix loan interest, dividends, disposal gains and coupon interest merely because they appear in a treasury income extract. Each may require separate applicable-law treatment.
Reconcile period income without creating a timing rule
The numerical examples assume that the stated period and interest recognition basis have been independently established. The circular does not itself create a universal cash-only or accrual-only rule, resolve doubtful-debt timing or prescribe the treatment of every overdue interest amount. Reconcile opening accrual, current-period recognition, receipt and closing accrual before mapping the relevant interest to its supported income head.
Review expenses separately
Identify actual expense categories and their legal treatment, remove duplicate allocations and prevent the same treasury cost being claimed in several pools. Rejection of an other-source classification premise does not eliminate other deduction conditions or disallowance provisions. Likewise, the circular’s discussion of a co-operative bank decision does not itself grant every bank a section 80P deduction.
Keep the earlier-year framework clear
This article concerns FY 2025–26 / AY 2026–27 under the 1961 Act. The Income Tax Department’s transition guidance preserves the old framework for that period. The final working should state the taxpayer population, security income, head-of-income conclusion, independently assessed expense treatment and any unresolved timing issue, with the circular retained as authority for its actual subject.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Contractual coupon check
Assume principal ₹2 crore, contractual annual coupon 8% and a full-year entitlement on the established facts. Interest is ₹16 lakh. The 8% is a fictional contract input, not a statutory tax rate or a conclusion about a particular instrument’s recognition timing.
Illustrative example 2: Two non-SLR instruments
Verified period interest is ₹12 lakh on one security and ₹7 lakh on another, total ₹19 lakh. Reconcile the two securities to the banking-business population rather than putting the total into another head merely because the instruments are non-SLR.
Illustrative example 3: Accrual roll-forward
Assume opening accrued interest ₹3 lakh, correctly recognised current-period interest ₹16 lakh and receipts ₹14 lakh. Closing accrual is ₹5 lakh. The ₹14 lakh receipt is not automatically the current-period income; the recognition basis is assumed separately established.
Illustrative example 4: Separate other receipts
A treasury extract totals ₹25 lakh: non-SLR coupon interest ₹18 lakh, disposal gain ₹5 lakh and dividend ₹2 lakh. The circular-focused interest population is ₹18 lakh. The remaining ₹7 lakh requires its own analysis rather than being silently treated as coupon interest.
Illustrative example 5: Expense overlap
A verified ₹6 lakh expense pool contains ₹1 lakh also included in another allocation. The combined draft ₹7 lakh must be reconciled to ₹6 lakh unique cost. Whether each cost is deductible remains a separate legal question.
Illustrative example 6: Receipt duplicate
One ₹4 lakh coupon receipt appears in two imported bank feeds, producing ₹8 lakh in the draft receipt register. Unique receipt is ₹4 lakh. Link it to the actual security and accrual before deciding the period income or income head.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm banking status | Taxpayer and Banking Regulation Act applicability evidence. |
| 2 | Identify the instrument population | Security master and supported non-SLR classification. |
| 3 | Separate income categories | Interest, dividends, disposal gains and loan income. |
| 4 | Verify contractual interest | Principal, coupon and relevant entitlement period. |
| 5 | Reconcile accrual and receipt | Opening/current/received/closing working. |
| 6 | Document the supported income head | Circular 18/2015 and taxpayer-specific conclusion. |
| 7 | Assess timing separately | Applicable law and unresolved recognition items. |
| 8 | Review each expense pool | Deduction basis and other disallowances. |
| 9 | Remove duplicates | Unique securities, receipts and allocations. |
| 10 | Preserve the final bridge | Financial records to tax computation with exceptions explained. |
Sixteen practitioner FAQs
1. Does non-SLR status automatically mean other-source income for a bank?
The circular accepts the banking-business principle for its stated taxpayer population.
2. Does the guidance extend expressly to commercial banks?
Paragraph 3.2 addresses banks/commercial banks to which the Banking Regulation Act applies.
3. Can an ordinary company use the bank conclusion automatically?
No. Establish its own facts and applicable law.
4. What classification issue did the circular address?
Other-source treatment of banks’ non-SLR interest and related expense-disallowance reasoning.
5. Is every treasury receipt coupon interest?
No. Separate the actual income categories.
6. Does the circular prescribe an 8% rate?
No. The illustration uses a fictional contractual coupon.
7. Does it impose cash-basis recognition?
No universal cash-only timing rule is established by this circular.
8. Does it settle every overdue interest issue?
No. Applicable timing provisions require separate analysis.
9. Why retain opening accrual?
It prevents receipts of earlier-period income being mistaken for current-period income.
10. Are all bank expenses automatically deductible?
No. Review actual deduction conditions and disallowances.
11. Does business-head treatment allow duplicate expenses?
No. Reconcile unique costs and allocations.
12. Does the co-operative-bank discussion grant section 80P to all banks?
No. The circular’s classification principle is not that blanket deduction conclusion.
13. Does the article classify all security disposal gains?
No. Its subject is the stated non-SLR interest issue.
14. Can bank-feed duplicates prove two coupons?
No. Match the actual payment and security evidence.
15. Which period is covered?
FY 2025–26 / AY 2026–27 under the earlier-year transition framework.
16. What should the computation note explain?
Bank status, relevant income population, classification authority, separate timing and expense conclusions.
Official sources
CBDT Circular 18/2015 Income Tax Department transition guidance