diff --git a/hydra/_internal/utils.py b/hydra/_internal/utils.py
index e133be6bfd6..1b850aeeee3 100644
--- a/hydra/_internal/utils.py
+++ b/hydra/_internal/utils.py
@@ -586,7 +586,9 @@ def _get_kwargs(config: Union[ObjectConf, DictConfig], **kwargs: Any) -> Any:
     config_overrides = {}
     passthrough = {}
     for k, v in kwargs.items():
-        if k in params and get_ref_type(params, k) is not Any:
+        if k in params and not (
+            get_ref_type(params, k) is Any and OmegaConf.is_missing(params, k)
+        ):
             config_overrides[k] = v
         else:
             passthrough[k] = v
@@ -595,10 +597,11 @@ def _get_kwargs(config: Union[ObjectConf, DictConfig], **kwargs: Any) -> Any:
     with read_write(params):
         params.merge_with(config_overrides)
 
-    for k, v in params.items_ex(resolve=False):
+    for k in params.keys():
         if k == "_target_":
             continue
-        final_kwargs[k] = v
+        if k not in passthrough:
+            final_kwargs[k] = params[k]
 
     for k, v in passthrough.items():
         final_kwargs[k] = v
diff --git a/news/1001.bugfix b/news/1001.bugfix
new file mode 100644
index 00000000000..02affd64bca
--- /dev/null
+++ b/news/1001.bugfix
@@ -0,0 +1 @@
+Fixed interaction between interpolation and instantiate
diff --git a/tests/__init__.py b/tests/__init__.py
index 8e6a47929ae..4fa533e6d75 100644
--- a/tests/__init__.py
+++ b/tests/__init__.py
@@ -28,11 +28,10 @@ def module_function(x: int) -> int:
 
 @dataclass
 class AClass:
-    def __init__(self, a: Any, b: Any, c: Any, d: Any = "default_value") -> None:
-        self.a = a
-        self.b = b
-        self.c = c
-        self.d = d
+    a: Any
+    b: Any
+    c: Any
+    d: Any = "default_value"
 
     @staticmethod
     def static_method(z: int) -> int:
@@ -43,16 +42,11 @@ def static_method(z: int) -> int:
 class UntypedPassthroughConf:
     _target_: str = "tests.UntypedPassthroughClass"
     a: Any = MISSING
-    b: Any = 10
 
 
+@dataclass
 class UntypedPassthroughClass:
-    def __init__(self, a: Any, b: Any) -> None:
-        self.a = a
-        self.b = b
-
-    def __eq__(self, other: Any) -> Any:
-        return self.a == other.a and self.b == other.b
+    a: Any
 
 
 # Type not legal in a config
diff --git a/tests/test_utils.py b/tests/test_utils.py
index 1d74d41afbf..485e779fd83 100644
--- a/tests/test_utils.py
+++ b/tests/test_utils.py
@@ -52,6 +52,11 @@ def test_get_class(path: str, expected_type: type) -> None:
     assert utils.get_class(path) == expected_type
 
 
+def test_a_class_eq() -> None:
+    assert AClass(a=10, b=20, c=30, d=40) != AClass(a=11, b=12, c=13, d=14)
+    assert AClass(a=10, b=20, c=30, d=40) == AClass(a=10, b=20, c=30, d=40)
+
+
 @pytest.mark.parametrize(  # type: ignore
     "input_conf, passthrough, expected",
     [
@@ -143,8 +148,8 @@ def test_get_class(path: str, expected_type: type) -> None:
         ),
         pytest.param(
             UntypedPassthroughConf,
-            {"a": IllegalType(), "b": IllegalType()},
-            UntypedPassthroughClass(a=IllegalType(), b=IllegalType()),
+            {"a": IllegalType()},
+            UntypedPassthroughClass(a=IllegalType()),
             id="untyped_passthrough",
         ),
     ],
@@ -232,10 +237,14 @@ def test_class_instantiate_objectconf_pass_omegaconf_node() -> Any:
 
 def test_class_instantiate_omegaconf_node() -> Any:
     conf = OmegaConf.structured(
-        {"_target_": "tests.AClass", "b": 200, "c": {"x": 10, "y": "${params.b}"}}
+        {
+            "_target_": "tests.AClass",
+            "b": 200,
+            "c": {"x": 10, "y": "${b}"},
+        }
     )
-    obj = utils.instantiate(conf, **{"a": 10, "d": AnotherClass(99)})
-    assert obj == AClass(10, 200, {"x": 10, "y": 200}, AnotherClass(99))
+    obj = utils.instantiate(conf, a=10, d=AnotherClass(99))
+    assert obj == AClass(a=10, b=200, c={"x": 10, "y": 200}, d=AnotherClass(99))
     assert OmegaConf.is_config(obj.c)