The Government put its plan for a tax discount on interest income back on the agenda yesterday, when it issued a discussion paper with a proposed design for the scheme that is now due to start in July next year.The scheme was first announced in May 2010 and was to have taken effect this year.The tax discount will apply on up to $500 of interest income in the first year (the 2012/13 financial year) and $1000 in subsequent years. The discount will exempt 50 per cent of eligible interest income, up to the amount of the cap.Assistant Treasurer Bill Shorten said the Government invited feedback on the policy design.When the scheme was first announced the chief criticism was the modest amount of the cap. Critics said that if the Government was serious about removing the tax disadvantage of deposits, relative to superannuation and dividend imputation, it would have to be more generous.The discussion paper gives more detail about the scope of the discount - the types of interest income that will be covered. Interest income that would be eligible includes interest from banks, credit unions and building societies, bonds, debentures, convertible notes, bills of exchange, promissory notes and interest from the Australian Taxation Office for early payments or overpayments of tax.Interest from a non-superannuation annuity product would be eligible (the "earnings component" but not the return of capital).Interest that is not assessable would not be eligible for the discount. This would include notional interest from mortgage offset accounts.Examples of payments commonly received by investors that would not be eligible include dividend income, life insurance bonuses, rent, and income derived from employment.Some interest already enjoys a tax concession so would not be eligible. Examples include interest earned on a First Home Saver Account and on superannuation accounts.The discount would apply to interest received indirectly, as well as directly - that is, through trusts (including managed investment trusts) and partnerships. The discussion paper says: "The interest would retain its character when passed via a trust or partnership to an individual."The Minister has called for submissions by August 5.