Section 80C

This query is : Resolved

Krishna Murthy (Querist)
Follow

28 December 2008 Sir, I want to know whether Recurring deposit made on monthly basis with the Post Office for a period of 5 yrs be claimed u/s 80C as deduction

C A GROUP COACHING

C A GROUP COACHING (Expert)
Follow

28 December 2008 NO

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)
Follow

29 December 2008 In Last budget, FM has mentioned that, investment made in "five year time deposit in an account under Post Office Time Deposit Rules, 1981" will be eligible for deduction from the Gross total income, under section 80C, with the overall section treshold of 1 Lakh.

The additional point to be noted is "The amendment shall apply to investments, as above, made during the financial year 2007-08 and subsequent years."

Upgrade to CAclubindia Pro. Subscribe Now!

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)
Follow

29 December 2008 sub-section (2) of section 80C: The following investments made by the assessee, during the previous year, shall be eligible for deduction under section 80C within the overall ceiling of rupees one lakh:-

(i) five year time deposit in an account under Post Office Time Deposit Rules, 1981; and

(ii) deposit in an account under the Senior Citizens Savings Scheme Rules, 2004.

Further, it is also proposed to provide that where any amount is withdrawn by the assessee from such account before the expiry of a period of 5 years from the date of its deposit, the amount so withdrawn shall be deemed to be income of the assessee of the previous year in which the amount is withdrawn. The amount so withdrawn, accordingly, shall be liable to tax in the assessment year relevant to such previous year. The amount liable to tax shall also include that part of the amount withdrawn which represents interest
accrued on the deposit. However if any part of the amount so received or withdrawn (including the amount relating to interest) has suffered taxation in any of the earlier years, such amount shall not be taxed again.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
Follow

29 December 2008 Deduction is available for a term deposit for five years in a scheduled bank. There is no statutory definition to indicate the meaning of "term deposits". The RBI's master circulars define it thus: "Term deposit means a deposit received by the bank for a fixed period and which is withdrawable only after the expiry of the said fixed period and shall also include deposits such as Recurring/Cumulative/Annuity/Reinvestment Deposits/Cash certificates and so on."
Since the income-tax law does not have a definition, the RBI's can be safely taken as correct. Section 194A Explanation 1 has a definition of the term "time deposits" to mean deposits repayable on the expiry of fixed period and excludes recurring deposits. This definition is given for the specific purpose of Tax Deducted at Source on interest income.

In view of the above, it seems that Recurring Deposit should be elegible for deduction under Section 80C. However, the intent of law does not appear to make it an allowable investment. The loophole needs to be plugged by issuing clarification on the matter. Till such clarification, How to treat? Needs further discussion.