Income Tax Act, 1961 – Section 28 – Banks are required to purchase Government securities to maintain the SLR. As per RBI’s guideline dated 16th October 2000, there are three categories of securities: HTM, AFS and HFT. As far as AFS and HFT are concerned, the interest accrued will have to be treated as income from the business of the Bank. Thus, after the deduction of broken period interest is allowed, the entire interest earned or accrued during the particular year is put to tax. Thus, what is taxed is the real income earned on the securities. By selling the securities, Banks will earn profits. Even that will be the income considered under Section 28 after deducting the purchase price. Therefore, in these two categories of securities, the benefit of deduction of interest for the broken period will be available to Banks – The securities of the HTM category are usually held for a long term till their maturity. Therefore, such securities usually are valued at cost price or face value. In many cases, Banks hold the same as investments. Whether the Bank has held HMT security as investment or stockintrade will depend on the facts of each case. HTM Securities can be said to be held as an investment (i) if the securities are actually held till maturity and are not transferred before and (ii) if they are purchased at their cost price or face value- When the securities were treated as stockintrade, the interest on the broken period cannot be considered as capital expenditure and will have to be treated as revenue expenditure, which can be allowed as a deduction . (Para 18-24)