KVP Interest calculation for A Y 2020 21

The interest earned on Kisan Vikas Patra (KVP) is fully taxable as "Income from Other Sources" in the hands of the investor.

Here are the key points regarding the taxation and financial treatment of KVP:

• Taxability of Interest: While the government guarantees your investment will double over the specified maturity period, the interest accrued is not tax-free. You are required to include the interest income in your total income and pay tax according to your applicable income tax slab.

• No Section 80C Deduction: Unlike some other small savings schemes (like the Public Provident Fund or National Savings Certificate), investments made in KVP do not qualify for any tax deduction under Section 80C of the Income Tax Act.

• TDS (Tax Deducted at Source): Practices regarding TDS on KVP can vary, but generally, interest on small savings schemes is often exempt from TDS at the time of maturity. However, because the interest is taxable, you should account for it when filing your annual income tax returns.

• Key Features:

  • Current Rate: The interest rate is currently 7.5% per annum (compounded annually).

  • Lock-in: There is a mandatory lock-in period of 2.5 years (30 months), after which premature withdrawal is permitted under specific conditions.

  • Eligibility: Only resident Indian citizens are eligible to invest; HUFs and NRIs cannot invest in KVP.

Summary: KVP is a safe, government-backed, fixed-income investment that doubles your money over a specific tenure. However, it does not offer any tax-saving benefits on the principal investment, and the interest earned is fully taxable as per your tax slab.