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‘What’s the tax implication of interest earned on 5-yr NSC income?’

Do you have any personal income tax query?

Mihir Tanna, Associate Director, S K Patodia & Associates (external link), a chartered accountants firm that offers consultancy, audit and tax services, will answer your queries.

Please mail your queries at [email protected] with the subject line ‘Ask Mihir’ and Mihir Tanna will answer all your tax queries.

Nagarajan S: I saw your answers for some queries raised by readers of Rediff.com and find the answers very useful. I am an NRI living in a country where there is no tax on income earned within that country. I have shares in NSE/BSE as a bona fide NRI customer of one of the leading Indian private banks. 

The dividend payments auto credited to my Indian NRI Bank account show deduction of income tax (TDS) of 20 %. I don’t have any source of income in India and I am above 61 years of age.

Is the TDS claimable back from IT department post submission of IT returns/post clearance from IT for the ITR filed?

Some of the Share Companies ask for form 15H which is form made available by the IT authorities of the NRI’s country of living or an exemption from the NRI country declaring that there is no income tax.

It is not possible to such an official declaration from the host NRI Country. How to handle such a situation?

I am not a PIO (People of Indian origin).

Mihir Tanna: Where TDS is deducted and taxable income is below the minimum exemption limit, TDS can be claimed back post filing Income Tax return within specified due date.

Further, with reference to Form 15H, same is applicable only for resident shareholders. Non-resident should check Double Taxation Avoidance Agreement (‘DTAA’) between India and the country of tax residence of the shareholder, if such DTAA provisions are more beneficial to such shareholder.

Further, to avail DTAA provisions, non-residents are required to submit self-attested copy of(1) Tax Residency Certificate (‘TRC’) issued by the tax authorities of the country of which shareholder is tax resident, evidencing and certifying shareholder’s tax residency status; (2) PAN (in case PAN is not available; Declaration providing specified details) (3) Form 10F; (4) Self declarations for residency, beneficial owner, DTAA eligibility, No Permanent Establishment, business connection / place of effective management in India, etc.

SHASHI GUPTA: Capital gain tax on buyback of Birlasoft shares offered through tender offer route. I offered 100 shares of Birlsoft shares for buyback through tender offer route and out of which 25 were accepted. My broker M/s Motilal Oswal DP Id 12010900 have charged CG TAX on this buyback. Kindly confirm if CG tax is applicable on this buy back?

Mihir Tanna: I understand that you have not done transaction through stock exchange and thus, STT is not paid in the given transactions. Accordingly, capital gain tax is applicable on buy back of shares of listed companies.

In case of short term capital gain, tax will be levied at slab rate and in case of long term capital gain, tax will be levied at 10%/20% (as applicable).

S Jayaprakash Iyer: I have few Post office NSCs which are going to mature this financial year. The maturity amount is accumulated over the last FIVE financial years. What would be the Income Tax implication on the total interest amount? Please give clarity. 

Mihir Tanna: Interest on NSC can be offered to tax on receipt basis or on accrual basis. In case the interest was already offered for tax on accrual basis (year on year basis), interest for 4 years will not be taxed again at maturity on receipt basis.

Shridharan Gopalan: Dear Sir, I was working for DOT Central Govt service since 1985. Later in 1st Oct 2000 BSNL (PSU) was formed and all the employees were absorbed in BSNL. I retired after taking VRS on 31-01-2019. My accumulated EL leave was 117 as on 1st oct 2000.

After my VRS bsnl paid leave encashment for 236 days (Dot period 117+ BSNL period 119 accumulated leave). While making the payment BSNL allowed full tax exemption for dot period and 3 lakh was exempted against leave salary paid and for balance IT recovered. But I got a demand notice from IT dept to pay tax for the entire DOT leave period. Is this correct? If it is exempted rom IT pl share the copy of such Govt order for appeal purpose to IT as support doc to convince them.

Mihir Tanna: In my view, IT dept is correct in charging tax for DOT period.

Leave encashment received by Central or State Government employee at the time of retirement or resignation is fully exempt.

Accumulated leave of 117 of DOT period is encahsed when you retired from BSNL not from DOT, so in my view, provisions of exemption should not apply.

Pallavi Manna: On downloading my AIS and 26AS for AY 2022-2023 in June this year I found that interest paidfor Rs.60000 and TDS Rs.6000 each on 04/08/202 and 09/02/2022 on someone else’s Taxable Savings Bonds with a Punjab National Bank branch has been wrongfully reported in my PAN in IT Portal besides my interest. I mailed complaints to their customer care, submitted written complaint with the branch and mailed multiple times but to no avail. After I lodged complaint with RBI Ombudsman they replied and also to RBI that mistake has been rectified on 29 Jul ’22. On that basis I submitted my ITR on 30/7/22 excluding interest income of Rs 120,000 and TDS Rs 12,000 not pertaining to me.

I also submitted feedback in AIS. But the AIS is showing this interest.

I did not verify my ITR as the rectification done by bank is not yet reflected in my 26AS. After I lodged complaint again with RBI Ombudsman on 23/08/22 the bank replied that correction would be done within seven days. I also registered my issue in MY GRIEVANCE Portal on 12 SEP ’22 but no further response is received and the mistake is still there.

Sir, kindly advise me what shall I do now?

Mihir Tanna: I understand you would have complied with verification requirement within prescribed time limit of 120 days.

With reference to wrong amount appearing in 26AS, as you have already taken appropriate steps, you can wait for 26AS updation.

If any tax demand is raised before 26AS updation, you have to contact CPC department of Income Tax. Through telephonic talk you have to explain the issue and request them to transfer your ITR to jurisdictional assessing officer (AO) so demand is deleted.

Once ITR is transferred to AO, you can explain to issue to AO, file copy of your communications/grievances.

You can request AO to look into issue and communicate with TDS deductor who has wrongly reported.

You can read more of Mihir Tanna’s responses here.

Note: The questions and answers in this advisory are published to help the individual asking the question as well the large number of readers who read the same.

While we value our readers’ requests for privacy and avoid using their actual names along with the question whenever a request is made, we regret that no question will be answered personally on e-mail.

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