I made an investment of ₹8 lakh in Kisan Vikas Patra in October 2015; It matures in February 2024. This was done from my VRS settlement. How much tax do I have to pay? How is the tax calculated? Is any indexation available?

 P. Raju

Your investment in KVP in October 2015 is covered under the Kisan Vikas Patra Rules, 2014, notified by the government after the reintroduction of the said scheme in 2014.

We understand that the said investment is interest-bearing and the disbursement on maturity shall include principal invested and the interest thereon at the rates prescribed by the government from time to time. 

Further, no deductions are available pertaining to either the amount invested in KVP under the scheme nor in respect of the income earned from the said investment under Chapter VIA of the Act. The income received on maturity from the investment made in KVP is exempt from Tax Deduction at Source (TDS) at the time of withdrawal.

The interest income received on redemption will be chargeable to tax under the head ‘income from other sources’ at slab rates. The taxability under the head ‘income from other sources’ is considered basis the method of accounting followed. Assuming that you have already offered the income to tax on accrual basis, the tax will be payable in the year of maturity on the interest received on withdrawal less the income already offered to tax in the earlier year on accrual basis.

There is no implication under the head ‘income from Capital gains’ and thus no indexation benefits available on the same. Your tax liability will, therefore, be calculated basis the above in case of interest on KVP investment and incomes earned by you from other sources of income in the relevant financial year.

The author is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in