The Interest Tax Act of 1974

The Interest Tax Act of 1974 applies to the imposition of tax on the interest accrued in specified cases of the relevant section of the Act. The Act has ceased to have any importance with regards to accrual of chargeable interest after 31 March 2000. Enacted by the Parliament of India in the year 1974, the Act applies to all the States as well as Union Territories of India without any exceptions. The Act specifies the definitions of different terms used under it and some of these terms could be unique to the Act itself.

Under the Interest Tax Act, the term ‘credit institutions’ for example, refers to banking companies that come under the Banking Regulations Act of 1949, and includes any bank or similar institution mentioned under Section 51 of the Act. It also relates to a public financial institution as mentioned under Section 4A of the Companies Act of 1956, and a State Financial Corporation that has been established as per Section 3 or 3A or any other institution under Section 46 of the State Financial Corporations Act of 1951.

The term ‘financial company’ too relates to a number of different types of companies dealing with finances of different kinds as per Sub Clause (i), (ii) or (iii) of Clause (5A). A hire purchase company that conducts hire purchase transactions or the financing of similar transaction as the main business is included under this term, as are investment companies that are involved in the business of debenture stocks, shares , bonds, stocks, debentures, or even securities issued by the Government of other local authorities. Housing finance companies involved in the procurement or construction of buildings or land development, as well as loan companies that provide finance are included in this term too. The Interest Tax Act also includes mutual benefit finance companies, residuary non-banking finance companies, and miscellaneous finance companies under this term of ‘financial company’.