By Chirag Nangia
What is the distinction between curiosity earned, curiosity paid and curiosity accrued. Which of those needs to be taken for computation of earnings (from fastened deposits) for tax functions?
—T V Mahadevan
Earned curiosity is the speed of curiosity that an funding earns on the principal quantity. Accrued curiosity is curiosity that an funding is at present incomes, however that you haven’t collected but. In nutshell, you accrue curiosity all quarter/ month and also you obtain it on the cost date. Interest paid is curiosity that you’ve acquired as cost into your account. The Income-tax Act has offered two strategies viz. accrual technique and money technique for accounting of curiosity acquired on FDRs. In the case of an accrual technique of accounting, incomes are recorded within the books of accounts on an excellent foundation even when the taxpayer has not truly realised the curiosity in his account. In the case of the money technique of accounting, incomes are recorded within the books on a receipt foundation. That is, the taxpayer will file the earnings provided that he truly receives such earnings in money. Taxpayers can go for any of those strategies however as soon as a way is chosen, it needs to be used constantly.
I’ve invested in NSC VIIth subject. If I embody the curiosity accrued for 1st, 2nd, third and 4th 12 months and present the identical as deduction underneath Section 80C, will the maturity quantity after fifth 12 months be exempt from tax?
—Lourdes Aaron
Deposits as much as Rs 1.5 lakh in NSC qualify for deduction underneath Section 80C. Accrued curiosity on NSC additionally qualifies for deduction underneath Section 80C. NSC curiosity is taxable. However, as it’s a cumulative scheme (e.g. curiosity shouldn’t be paid to the investor however as a substitute accumulates within the account), annually’s curiosity is taken into account reinvested within the NSC. Since it’s deemed reinvested, it qualifies for a contemporary deduction, thereby making it tax-free. Only the ultimate 12 months’s curiosity, when the NSC matures, doesn’t obtain a tax deduction because it doesn’t get reinvested, however is paid again to the investor together with the curiosity of the sooner years and the capital quantity.
The author is director, Nangia Andersen India. Send your queries to [email protected]
Source: www.financialexpress.com”