Chapter VI A Deductions

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This query is : Resolved

Rajat (Querist)

01 October 2008 I somewhere read - it is not necessary that investments made in specified instruments (to claim deductions under Chapter VIA) should be from income chargeable to tax.

For eg : Suppose for FY08 I have accrued taxable income of 5 lac (not actually recd in cash).

To claim deduction u/s 80C, I deposit Rs 1 lac in Bank FD for five years from the LIC proceeds (which is exempted u/s 10(10D).

Will this deduction be allowed despite the fact that investment is made from exempted income?

If yes, then why Interest on NSC (deemed to be reinvested) is not allowed as deduction u/s 80C, if it is exempted from income u/s 10(15)

Does it make any logical sense to include the exempted income in taxable income and then claim the deduction?

K V Subba Rao

K V Subba Rao (Expert)

01 October 2008 (1) Gross qualifying amount would be allowed as a Deduction irrespective of whether or not amount is deposited from out income chargeble to tax. (Ref: Para 107.1.1 of 31st edition of Singhania's Direct Taxes Ready Reckoner). So if utilise maturity amount of LIC Policy to make Bank FD under tax savings scheme, there is no problem; you are entitled to Deduction u/s 80-C.

(2) Interest earned on NSCs is NOT exempt from Tax. It must be included in Total Income. Of course, you are entitled to claim like amount, if reinvested, as Deduction u/s 80-C.

Rajat

Rajat (Querist)

01 October 2008 Thank you Sir.

But isnt the interest earned on NSC, PO Saving A/c, PO Time Deposit A/c, PO Cash certificates etc exempted from tax u/s 10(15)

Well known expert Mr. T.N. Manoharan has shown all these interest income as exemption u/s 10(15) in one of his latest books.

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