Interest income under Taxability of different kinds of income : 

Under section 2(28A), “interest‟ means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. The definition of interest also includes any service fee or other charges in respect of loans, debts, deposits, etc. as well as commitment charges on non-utilised portion of credit facilities.

Section 9(1)(v) provides that income by way of interest payable by the Government, or by a person who is resident or by a person who is a non-resident, shall be income deemed to accrue or arise in India. However, the following exceptions have been provided:

(i) interest payable by a resident in respect of any debt incurred or any moneys borrowed and used for the purposes of a business or profession carried on by him outside India;

(ii) interest payable by a resident in respect of any debt incurred or any moneys borrowed and used for the purpose of making or earning any income from any source outside India;

(iii) interest payable by a non-resident in respect of any debt incurred or money borrowed and used for the purpose of a business or profession carried on by him outside India.