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Is KVP a tool to convert black money to white?

CA Umesh Sharma 
on 24 November 2014


Karniti Part 64

Is it a tool to convert Black Money into White - Kisan Vikas Patra ?

Arjuna (Fictional Character): Krishna, recently the Government has reintroduced the investment scheme of “Kisan Vikas Patra”. There are many questions regarding this scheme but answer to the most important question is unascertainable. The earlier scheme of “Kisan Vikas Patra” was closed due to increasing black money from the scheme then why it is reintroduced?   

Krishna (Fictional Character): Arjuna, Common Public invests in non-productive assets like Gold, Silver, properties etc. The intention of the government through this scheme is generation of funds for the development of the nation. People in the greed of having more returns get cheated by investing through Ponzi schemes and Private Investment schemes. The same should not happen is the motto of this scheme. Firstly you understand the scheme then we will discuss about the black money.          

Arjuna: Krishna, what are the characteristics of the scheme “Kisan Vikas Patra”?  

Krishna: Arjuna, Kisan Vikas Patra is the option of investment for common public. Investment in this scheme can be made through Post office in cash or through cheque. After some days this scheme will also be made available through Public Banks. The maturity period of Kisan Vikas Patra is 100 months i.e. of 8 years and 4 months. The investment made will be doubled after this period. Investor will get 8.7% returns on the investment. Investor can make investment of Rs. 1,000, Rs. 5,000, Rs. 10,000, and Rs. 50,000 or in the multiple of this. There is no maximum limit for investing in this scheme. “Kisan Vikas Patra” certificates are transferrable from one person to other any number of times. The investor can avail loan by keeping these certificates with banks or any other financial Institutions. The scheme has lock in period 2 years and 6 months. Even though the name of scheme starts with Kisan, any Individual or HUF can invest in the scheme.

Arjuna: Krishna, which documents are required for making Investment in the scheme? 

Krishna: Arjuna, Investor should have to submit the following documents for identity: 1) Passport size photo 2) Identity Card any one of the following i.e. Election card, Ration Card, Passport, Driving License, etc. 3) Address Proof any one of the following i.e. Light bill, Telephone bill, Bank passbook etc. Copy of PAN card is necessary if investment is above Rs. 50,000/-. All these documents should be self-attested.

Arjuna: Krishna, What is the treatment of Kisan Vikas Patra in Income Tax?

Krishna: Arjuna, Interest from investments is required to be considered under “Income from Other Sources” and income tax will have to be paid on it. E.g. if Rs.1 lakh is invested in Kisan Vikas Patra scheme then after 100 months the investor will get 2 lakhs. But the investor has to consider the interest income every year and has to pay income tax on it. Further it seems that in absence of PAN it is not possible for government to deduct TDS on Interest. But deduction under section 80C is not allowed on this investment.      

Arjuna: Krishna, what about the question of Black money and what one should learn from this?


Krishna: Arjuna, many smart people can take disadvantage of the scheme. Because how the Income Tax Department will get information about the investment made is not clear. God knows how one will take benefit of no restriction of PAN and no TDS on Interest. Thus it has become difficult to find out whether these schemes will be beneficial to convert black money into white money. The period of 8 and half year for encashment and restriction of 6 years for Income Tax Department to re-open the case is hurdle for department. Thereby it becomes difficult to ascertain source of investment and tax it after 6 years. It is difficult for the Income Tax Department to find out the investor also in absence of PAN. It is a fact that every investor is not taxpayer but every taxpayer may be investor. According to this provision some may try to convert the black money to white. But if Government decides then restriction may be levied on it. The success or failure of the scheme depends on Government’s tax policy and Investor’s intention. Nothing can be said about the Government scheme and the intention of Public. Many times it is said Government’s schemes are good but the people’s implementation makes it bad. Kisan Vikas Patra se Kiska Vikas Hoga is not known.           

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