TAX TALK-29.08.2016-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Taxpayers are entitled to get interest on income tax refund
Query 1]
I have speedily received my income tax refund for the AY 2016-17. However, refund received was of the refund claimed amount only and no interest was received thereon. My colleague has also filed the return along with me. He has received the refund including the interest amount. How the discrimination could be done while issuing the refund? I am enclosing herewith the copy of income tax intimation and password thereof for your kind opinion. Please guide. [sivaram.ganeshan@sbm.co.in]
Opinion:
Next to being shot at and missed, nothing is really quite as satisfying as an Income Tax Refund --F.J. Raymond.
Many times it may happen that the taxpayer has paid excess tax as against the tax required to be paid by him. In such case, every taxpayer is entitled to receive refund within one year from the end of the financial year in which his return is filed.
Gone are the days when getting the refund was stupendous task. With the passage of time, the time taken for issue of refunds has been reduced from years to months to almost days now. More and more taxpayers are surprisingly finding the credit of income tax refund in their bank account within unexpectedly short period and that too without even approaching or writing to their assessing officer. CBDT deserves kudos. Indian income tax department is one of the fastest department in issuing the income tax refunds. Timely issue of refund has not only generated environment of trust and confidence amongst the taxpayers but has also reduced the interest cost of the treasury.
Interest on Income Tax Refund:
As per Section 244A of the Income-tax Act, a taxpayer is entitled to interest @ 0.50% for every month or part of the month, (6% per annum) from 1st day of April of the assessment year to the date on which the refund is granted, where the refund arises on account of TDS or advance-tax. It needs to be borne in mind that as per the proviso to Section 244A, no interest is payable if the amount of refund is less than 10% of the tax payable by the taxpayer. It also needs to be noted that for the purpose of computing the interest, even part of a month is to be treated as a full month.
In your specific case, total tax due was Rs. 2,58,369/-. Refund due was Rs. 22,899/-. As Rs. 22,899/- was less than Rs. 25,837/- (i.e., 10% of 2,58,369/-), no interest is payable as refund due is less than 10% of the amount of tax. [Proviso to Section 244A, clause (aa)].
Query 2]
I had bought 10 year NSC. I had query about tax treatment of its interest.
Is it correct to add its interest every year in my income as I do with my bank FDR’s? I am not using NSC interest for 80C deduction. I am depositing Rs. 1,50,000/- deductions limit in PPF. Please guide. [Rajendra Gupta- bhaguptarat4002@gmail.com]
Opinion:
National Savings Certificate (NSC) is an Investment alternative developed by Government of India with an intention to induce persons to a saving habit and to develop national savings. NSC is issued through Post Offices which is a nodal agency making it available to the common public. NSC falls in one of the highly secured class of Investments.
Tax treatment:
Deposits in NSC qualify for Deduction Section 80C of the Income Tax Act subject to overall cap of Rs. 1.50 Lakh. Unlike PPF, interest accruing on NSC also qualifies for deduction u/s. 80C. NSC interest is taxable on accrual basis as interest is not paid to the investor but instead accumulates in the account & is considered as reinvested in the NSC. Since it is deemed reinvestment, it qualifies for a fresh deduction under Sec 80C. Only the final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount. To benefit from this feature of reinvestment of interest and its deduction thereof, it requires declaration of accrued interest on NSC on a yearly basis in tax return under the head “Income from Other Sources”. Under deductions, taxpayer can claim accrued interest for all the years except the last year. There is no upper limit for Investment in NSC & TDS is not applicable on the NSC accrual/repayment. Investor can take a loan from the bank by pledging the NSC. There is no bar or restrictions against availing the loan from NSC.
In your specific case, you are required to offer interest accruing on NSC for taxation every year. You are already availing deduction u/s 80C by investing Rs. 1.50 Lakh in PPF account. Resultantly, reinvestment of interest of NSC will not result in any additional tax benefit in your hands. It has to be offered for taxation even if you are not claiming it as deduction u/s 80C.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]
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