In 2021, I bought Kisan Vikas Patra (KVP) for ₹20 lakh. I have been paying income tax on the interest accrued on this every year and also include it in my income tax returns (ITRs) . Since there’s no provision of tax deducted at source (TDS) on the interest earned by KVP, its consolidated interest will reflect in my 26AS and annual information statement. What should I do to avoid double taxation at the time of redeeming the KVP?
—Name withheld on request
It is assumed that you are not required to maintain and get the books of accounts audited under the provisions of the Income-tax Act, 1961.
Section 145 of the Act provides for taxation of income from other sources (like interest) in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Hence, if cash basis is regularly adopted, interest from Kisan Vikas Patra (KVP) may be offered to tax in the year of its maturity. If mercantile basis is regularly adopted, the interest should be offered to tax every year on an accrual basis.
In the instant case, you have opted to offer to tax the interest income earned from KVP on mercantile basis, which is presumably the regular system of accounting followed by you, in accordance with the above provisions.
In case of any inquiry about the mismatch of the interest income appearing in the AIS in the year of maturity vis-à-vis the interest income offered to tax in that year, the same may be explained on the basis of a reconciliation of the accrued amount offered to tax in past years’ tax return and necessary documentary evidence.
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It may be separately noted that as per the current provisions of section 194A of the Act, on maturity of the KVP, no taxes are required to be deducted on the interest income. Hence, tax due (if any) is entirely payable as self-assessment tax / advance tax (as applicable).
Can an individual who is a minor open a public provident fund (PPF) account ?
—Name withheld on request
As per the provisions of the ‘PPF scheme, any individual may, on his own behalf or on behalf of a minor, of whom he is the guardian, subscribe to the PPF. Hence, only a guardian on behalf of a minor is eligible to open a PPF account.
Do note that only one account can be opened in the name of a minor by any guardian. All other conditions / limits as applicable in case of a PPF account are applicable for such account as well.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.