Ritesh Jain (CA, CS in Job) (675 Points)
28 April 2010Hi friends,
I have a few very-2 simple question on which I will lay further some more...so the simple ones are here:
1) Is Accrued interest on NSC (current series) taxable.?
2)Lock in period of NSC for availing tax benefit u/s 80c?
3) Treatment of principal and interest amount on maturity?
On receipt of answer I will proceed further...
Thanx
Jyoti Malik
(ACCOUNTANT)
(2644 Points)
Replied 28 April 2010
| Originally posted by : CA. Ritesh Jain | ||
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Reply: Interest on NSC is not taxable.
Reply: No, the benefit is availing only for the period in which it is purchase.
Reply: both are shown as exempt income.(taxfree)As Principal was declare as investment and interest was shown as accrued income(exempt ).
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Varun Jain
(CA, B.com )
(392 Points)
Replied 28 April 2010
Ans- Accrued interest for NSC shall be considered to be income under the other sources.
Interest for the first 5 year shall be considered to be reinvestment and deduction under section 80C shall be allowed but interest for the 6th year shall not be considered to be reinvestment because there will be actual payment of interest hence deduction under section 80C shall not be allowed for the interest of 6th year.
3.) Entire amount received on maturity shall be exempt from income tax.
Accrued interest on NSC for 1st 5 year is not taxable.but treatment is that 1st you have to show interest as other source income then you will claim deduction u/s 80c
but interest for the maturing year is taxable as o/s.
I dont have idea regarding lock in period.
On maturity only the interest of that year will be taxable.
Kaushik Vankadkar
(Service)
(350 Points)
Replied 28 April 2010
Answer 1: There is no concept of tax free NSC interest. The interest is taxable at first instance but subsequently you can claim the same as deduction u/s 80C, so the effect is nil and hence said by many people that it is tax free.
Answer 2: To claim deduction u/s 80C for NSC investments you have to qualify the requirements provided in section 80C for Saving Certificates.
Answer 3: Principal amount is no doubt, not taxable. And that part of interest which is NOT taxed earlier has to be taxed now.
Kaushik Vankadkar
(Service)
(350 Points)
Replied 28 April 2010
Also agreeing with Varun and Mosharraf.
Nitin Grover
(CS)
(1228 Points)
Replied 28 April 2010
Dear CA Ritesh
As per your questions my views are written as follows
1. Yes its Taxable because its deemed as your Income so its taxable under income from other source but simultaneously you can take benefit u/s 80 C because its automatically added in your investment which is allowed u/s 80 C.
2. Lock in period is FIVE Years as per rules for claming exemption u/s 80C min lock in period is 5 years for all types of Scheme.
3. At the time time of Maturity its totally exempt u/s 10 because u have locked your money for 5 years and have not used ur money.
Regards
Hareesh H Sharma
(Cleared IPCC..now article)
(894 Points)
Replied 28 April 2010
Even i guess last years interest is taxable
/experts/interest-on-nsc-is-tax-free-or-not-96406.asp
/forum/nsc-interest-taxable-or-not-54611.asp?1=1&offset=1
And i also think its better to account the interest each year and claim deduction rather than to wait for the final year where in it will accumulate to a higher amount.
Ritesh Jain
(CA, CS in Job)
(675 Points)
Replied 28 April 2010
Thank you all for sparing time,
answer were what I expected barring few...anyways..now plz tell me....
1)Is Accrued interest on FD taxable.?
2)Lock in period of FD for availing tax benefit u/s 80c?
3) Treatment of principal and interest amount on maturity?
question are same but item has been changed....
Thanx.
Balaji
(Knowledge Seeker)
(317 Points)
Replied 29 April 2010
Dear Ritesh,
1) Accrued interest on F.D.s is taxable.
2) 5-year Bank F.D.s are eligible for deduction u/s 80-C.
3) Principal on maturity is not taxable.Cumulative interest received on maturity will also be not taxable provided you have offered for taxation the accrued interest on an yearly basis.However,you have the option of offering the entire cumulative interest for taxation in the year of maturity.But generally it is prudent to accrue the interest and offer the same for taxation on an yearly basis,unless you are on the verge of retirement and expect that there would be a sharp drop in your income in the year of maturity.
Balaji
(Knowledge Seeker)
(317 Points)
Replied 29 April 2010
Just an addendum to my earlier post-interest earned during the last year before maturity would be taxable during that year.
Ritesh Jain
(CA, CS in Job)
(675 Points)
Replied 29 April 2010
Hi all,
A person can take 80C benefit on FD interest if he takes the interest out of bank in money terms and again reinvest it by making a FD so that he will be taxed and benefited too making a nil effect, if a person does not take out his interest portion in money terms he will be taxed and that too w/o 80C benefit. Whereas in case of NSC it is not required .
The only difference in both cases is that for NSC accrued interest 5 years lockin is not required i.e even 4th year interest is deductible which is actually invested for 2 more years only whereas in case of FD interest deduction is only when you show that interest part is also reinvested for 5 years.
The bottom line is that
Govt has taken a biased decision to benefit NSC which is for post offices and directly a govt money.
whereas FD interest are realted to banks and not govt money.
Thanks
CAclubindia
