i gifted my sister ₹10 lakh in 2017 who is living with her daughter after losing her husband. I gifted the amount to support him for the situation where something unexpected happens to me. He had invested that money in Kisan Vikas Patra in 2017 based on my suggestion. Since this KVP is expected to mature in 2027, will it be taxed at 30% in the year 2027 considering the current tax rate? He does not have any other income and has not filed IT return till date. – Name withheld
This was answered by Shailesh Kumar, Partner, Nangia & Co. LLP.
The Income Tax Act provides for taxation of income from other sources (such as interest) on cash or accrual basis at the option of the taxpayer. If the taxpayer opts for taxation on ‘cash basis’, interest from Kisan Vikas Patra (KVP) can be taxed at the slab rates applicable in that year in the year of its maturity. Accordingly, interest from KVP will be taxed in the hands of your sister in 2027 as per the then existing slab rates.
No tax will be deducted from this maturity amount and full tax on such interest will have to be paid to your sister on the basis of advance tax/self-assessment tax. Your sister may opt for the old tax regime or the new tax regime, which may be applicable and may be more beneficial to her during that year.
On the other hand, the taxpayer may opt to pay tax on such accrued interest on annual basis so as to distribute the tax liability equitably during the tenure of the instrument and avail slab rates every year.
(Send your questions to mintmoney@livemint.com)
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