Tax Treatment of Interest, Gains or Profits Derived from Negotiable Certificates of Deposit by Non-Financial Institutions

Key requirements

For a non-financial institution, interest and sale gains from an NCD are deemed passive interest under the stated income tax provisions. An original holder reports relevant returns as interest; a sale loss cannot offset other income sources. A subsequent holder’s calculation considers the issued price, purchase price, interest already received and sale proceeds. A premium adjustment cannot be used again after it has already reduced earlier interest. The worked examples show why a straightforward accounting gain is not necessarily the taxable amount. Keep the acquisition and issue prices and the history of interest adjustments for each certificate.