Interest on Kisan Vikas Patra is taxed on accrual foundation

I gifted my sister ₹10 lakh in 2017 who resides together with her daughter after she misplaced her husband. I gifted the quantity to help her for a state of affairs the place one thing sudden occurs to me. She invested that cash in Kisan Vikas Patra based mostly on my suggestion in 2017. As this KVP is anticipated to mature in 2027, will this entice 30% tax within the 12 months 2027 contemplating the present tax fee stays? She would not have some other earnings and has ni filed an IT return until date. – Name withheld 

Answered by Shailesh Kumar, Partner, Nangia & Co LLP. 

The Income Tax Act offers for taxation of earnings from different sources (like curiosity) both on money or accrual foundation on the possibility of the taxpayer. If the taxpayer opts for taxation on ‘cash basis’, curiosity from Kisan Vikas Patra (KVP) could also be taxed within the 12 months of its maturity on the slab charges which might be relevant in that 12 months for a person. Accordingly, curiosity from KVP shall be taxed within the arms of your sister in 2027 as per the then present slab charges.

No tax will likely be deducted from this maturity proceeds and whole tax on such curiosity should be paid by your sister on advance tax/ self-assessment tax foundation. Your sister could go for the previous tax regime or new tax regime, as could also be relevant and extra useful for her throughout that 12 months.

On the opposite hand, taxpayer may additionally select to pay tax on such accrued curiosity on yearly foundation to evenly distribute the tax legal responsibility throughout the tenure of the instrument and to take advantage of slab charges yearly.

(Send your queries at mintmoney@livemint.com)

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