Regarding trust

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Sandeep Shah (Querist)

29 November 2011 Dear Friends.........

Good Noon.....

If Trust invest money in Bank as a Fixed Deposit for the purpose of
applied income 85% of Total Income. Kindly confirm me that Whether
trust will break the Fixed Deposit after one year after A.Y. and Whats
the treatment of such amount whether it is taxable in the year of
withdraw or exempt.

Kindly give your feedback regarding such query as early as possible

Regards

CA SANDEEP SHAH
+91 93769 77281
+91 99138 80491

H B BHASKAR SHENOY

H B BHASKAR SHENOY (Expert)

30 November 2011 Sandeep, Investment in a bank cannot be an application of income. The act and rules say that unapplied funds must be kept invested in one of the prescribed modes, and one of these modes is bank fds. So there is no question of it being treated as application under the 85% you have mentioned. When you withdraw, it is withdrawal of your own investment and no tax on the principal portion. The interest portion has to be treated as income in the relevant assessment year and the taxability will be based on 85% applied or not and options under sub-sections of sec 11 availaed or not.

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Sandeep Shah

Sandeep Shah (Querist)

30 November 2011 Dear H B Bhaskar first thank you for give me reply. Kindly conform me that if i will have investment in Bank as a Fixed deposit whether it is application of income of not and at the time of maturity it will be taxable or not. Yes it is ok that Interest is taxable on accrual basis but what the treatment of principal portion of fixed deposit at the time of maturity.

H B BHASKAR SHENOY

H B BHASKAR SHENOY (Expert)

30 November 2011 Sandeep, read my reply properly. I have clearly given that Investment in a bank cannot be application of income; it is only a mode of retaining funds which have not yet been applied for the objects of the Trust. It is not application of Income.
Similarly at time of maturity the principal is not taxable as there is no income element in it.

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