So i heard about this Section 57(iii) which seems to be in simple words loan taken for bonds (assume g-secs) can have its loan-interest component subtracted from bond-interest earned, when the loan interest exceeds the bond-interest the overflow loss can be used to setoff other income apart from salary… Is this true and working in new tax regime, has anyone taken the overflow rebate of this?, which bank?, what loan type?, any upper limit?
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Yes, it’s there but how do you want to leverage it? Intrest on bonds is far lower than the loan interest rate so you will suffer loss here. Or are u looking to leverage the loss to reduce your tax liability?
Yes to reduce tax liability…
Be careful… Don’t know if you are hnw or some business guy who wants to park his capital temporarily but if not then IT department would be coming behind you for the clear case of tax evasion in case you did it for harvesting the losses and reduce your tax liability…
Reviewing the text of Section 57 of the Income Tax Act 1961 (now 93.e. of I.T Act 2025)
IIUC, to claim a deduction, the clause “expended wholly and exclusively for the purpose of” would require one to use the entire proceeds of a loan ONLY to invest in bonds on which one is reporting “Income from other sources” , whch makes it an financially unviable proposition, as amitskale pointed out.
Couple of scenarios where it “might” be viable:
- interest rate falls enough to offset loan interest in the long run
- loan interest may be high in the initial stages knocking down OP’s tax bracket
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