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NSC Interest Taxation


CA Parth Trivedi (Service)     15 February 2010

CA Parth Trivedi
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 This is reg interest treatment on NSC

Interest Accrued on NSC Investments, is considered taxable each year under "Other Sources", but its reinvestment is considered under Chapter VI (ie 80C) and is deducted.

Now at the time of maturity whether the interest received amount is taxable ?

Also, if we consider logic of min 3 year investment lock in period, then what about interest reinvestment on NSC for year no., 6 and 7 where these amounts are received back without lock in period of 3 years ?

Also, if any Loan is taken against NSC, whether there will be any impact on the same ?
 

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Aditi Kaur (Practising CA)    16 February 2010

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Ratan Deep Saxena (Asstt Manager (Accounts & Finance))     15 February 2010

Ratan Deep Saxena
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• The capital investment in N.S.C.s qualifies for rebate u/s 80C in the first year of investment.
• Thereafter (after completion of one year) for the next 5 years the annually accrued interest on N.S.C.s is eligible for rebate u/s 80C as it is considered reinvested in N.S.C.s
• Also this annually accrued interest is taxable on an accrual basis every year under the head ‘Income from Other Sources’.
• If the accrued interest is not taxed every year on an accrual basis than the entire income becomes taxable during maturity / withdrawal.

regards,

ratan

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CA Parth Trivedi (Service)     15 February 2010

CA Parth Trivedi
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Thanks Ratan,

It means we cannot take its interest deduction after 5th year.Is it So ?

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Ratan Deep Saxena (Asstt Manager (Accounts & Finance))     15 February 2010

Ratan Deep Saxena
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Actually interest accrued on NSC reinvested every year. So it qualifies for rebate u/s 80 C. Calculation of the interest accrued on NSC's as per following :

Annual accrual rate of interest on investment of Rs.100/- is as under and is in proportion for other denominations.

1st year : Rs. 8.16
2nd year : Rs. 8.83
3rd year : Rs.9.55
4th year : Rs.10.33
5th year : Rs.11.17
6th year : Rs.12.08

Interest recd on maturity (last year) will not eligable for rebate u/s 80 C.

Hope this wil better clear ur doubt.

regards,

ratan

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Rajnish Luniya (Article)     11 May 2010

Rajnish Luniya
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but under which section maturity amount of NSC is tax free, like 10(10D) for LIC, etc

kallu (Software Engineer)     23 October 2010

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Originally posted by : Rajnish Luniya

but under which section maturity amount of NSC is tax free, like 10(10D) for LIC, etc

Why do you think maturity amount is tax free. The principal amount is tax free but the interest will be taxable.

kallu (Software Engineer)     24 October 2010

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Originally posted by : Ratan Deep Saxena

• The capital investment in N.S.C.s qualifies for rebate u/s 80C in the first year of investment.
• Thereafter (after completion of one year) for the next 5 years the annually accrued interest on N.S.C.s is eligible for rebate u/s 80C as it is considered reinvested in N.S.C.s
• Also this annually accrued interest is taxable on an accrual basis every year under the head ‘Income from Other Sources’.
• If the accrued interest is not taxed every year on an accrual basis than the entire income becomes taxable during maturity / withdrawal.


regards,


ratan
 

Ratan, you have nicely described the NSC taxation as there is lot of misconception on various forums. Now, how does one choose between paying tax on accrued interest or the accrued interest at maturity? Are both the methods equivalent? Delaying the payment of tax seems better to me as money is growing tax free. Am I missing something?

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Ajit Singh (Student)     31 July 2016

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What if the assessee had already contributed more than 150000/- under Section 80C ?

then how can be accurred interest on NSC can be allowed as deduction u/s 80C ?

Please clarify ?


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