Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on November 10, 2019 Published on November 10, 2019

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Interest on NHAI capital gain exemption bonds — Sec 54EC bonds — are paid on April 1 every year. I invested in these bonds in August 2019 and will receive my first interest on April 1, 2020, and thereon on April 1 every year. Should I declare this interest in my tax returns on accrual basis in FY2019-20 or can I declare it on receipt/cash basis in FY2020-21? Or can I choose between cash/receipt basis or accrual basis and follow the same rule every year?

A Venkat

The interest earned on NHAI capital gains exemption bonds is taxable under the head ‘Income from Other Sources’. No tax at source would be deducted by NHAI from the interest on these bonds.

Section 145 of the Income Tax Actstates that Income from Other Sources must be computed on the regular accounting methods followed by the assessee. It can be either cash or mercantile system of accounting.

Further, the Central government has notified Income Computation and Disclosure Standards (ICDS) to be followed while computing the income which are applicable to all assessee’s (other than an individual or a Hindu undivided family who is not required to get their accounts of the previous year audited in accordance with the provisions of Section 44B of the I-T Act).

Assuming you are not required to get your accounts audited as mentioned above, you may offer the interest earned on these bonds using the same method followed by you for your other income sources (for example, bank interest) falling under this head of income.

If interest on these bonds is your only income from other sources, you may select between receipt basis or accrual basis and follow the same method every year.

My private sector employer has a policy with LIC for superannuation benefits. I have resigned before completing 58 years (the age of superannuation in the organisation). My questions are:

1. Can I commute the whole or a part of my pension as I have resigned before completing 58 years, or is this irrelevant?

2. I also receive gratuity, and hence taxability of commuted value of pension would fall under Section 10(10A)(ii)(a) of the Income Tax Act. My understanding of tax exemption is as follows: a) If I opt to commute 100 per cent of my pension, one-third of the amount would be exempt from tax and I have to pay tax on the rest. b) If I opt to commute only one-third of my pension, the whole of the one-third value so commuted will be exempt from tax. Is this correct? Will the resignation before completing 58 years affect tax exemption under b) above and would I be required to pay tax on the one-third of the pension commuted?

Ramkumar R

I understand and presume that you are covered under the approved superannuation scheme (approved under the provisions of the I-T Act) of your employer for which a policy has been taken to provide annuity/pension benefits through the Life Insurance Corporation of India.

Commutation of benefits under a pension/annuity policy can be done only after attaining the superannuation age (as defined in the superannuation scheme)

In case you wish to withdraw the contributions (including interest accrued thereon) before attaining the specified superannuation age, the complete amount can be withdrawn, which shall be taxable in your hands, and your employer shall be liable to deduct tax at source (TDS) at the applicable tax slab rates for you.

However, if you would withdraw the amount upon attaining the specified superannuation age (which can be taken as 58 years), you shall be eligible to commute one-third of the amount of annuity (if you are eligible to receive gratuity). Else, you may commute half of the annuity amount. The amount so commuted shall be exempt from tax under Section 10(10A).

The writer is a practising chartered accountant.

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Published on November 10, 2019
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