A simple question...

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.

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.  

Also agreeing with Varun and Mosharraf.

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

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.

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.

thanks

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.

Just an addendum to my earlier post-interest earned during the last year before maturity would be taxable during that year.

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