ITAT: Accrued interest component on non-convertible debentures sales is taxable as interest income

The Income Tax Appellate Tribunal ruled that the accrued interest component embedded in sale proceeds from non-convertible debentures should be taxed as interest income rather than capital gains. The case involved a Singapore-based investor who sold NCDs of an Indian company five days after a coupon date and had claimed capital gains exemption under the India-Singapore tax treaty. Tax experts warn the ruling could increase scrutiny of secondary debt transactions around coupon dates and trigger fresh litigation for foreign investors.