Tax Query: Applicability of inflation-indexation on IINSS-C securities of RBI

Please explain the applicability of Inflation-indexation (for finding out taxable interest amount) for the recently matured IINSS-C securities of RBI issued in 2013. Or, is the full maturity amount less initial investment taxable?

Banerjee

It has been stated at the time of issue of these securities by Reserve Bank of India (RBI) that Inflation Indexed National Savings Securities-Cumulative (IINSS-C) will not be listed. As per the scheme, it was stated that interest on IINSS-C will be accrued and compounded in the principal on half-yearly basis and paid along with principal at the redemption.

The RBI offers investors a return of 1.5 per cent more than inflation based on the consumer price index. Inflation indexed securities protect both the investors and issuers from the uncertainty of inflation over the life of the security. The other information on these securities, and terms, etc., can be obtained from the RBI and/or you may look at the details that would have been shared with you at the time of issue of these securities.

In response to your query, and as stated above, interest is accrued and compounded every six months. In view thereof, investors have to pay tax on it in the financial year when the interest accrues despite not getting actual payment of the interest. The interest will be taxable under the head “income from other sources”. 

The author is a practising chartered accountant

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