501. Subscriptions to National Savings Certificates (VI Issue/VII Issue) - Clarifications on certain issues regarding their eligibility for deduction under the section
Circular No. 405 was issued by the Central Board of Direct Taxes on 15 January 1985. Its subject is 501. Subscriptions to National Savings Certificates (VI Issue/VII Issue) - Clarifications on certain issues regarding their eligibility for deduction under the section.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Answers six questions on the section 80C deduction for subscriptions to National Savings Certificates VI and VII Issues, which were specified as Central Government securities for section 80C(2)(h) by a notification in force from 2nd April, 1983. The governing test throughout is who paid: the deduction goes to the person who contributed the money out of his income chargeable to tax. So on a joint holding the first named person gets it only if he in fact contributed; certificates bought in the name of a spouse or minor child give the deduction to the purchaser who paid out of his taxable income; and interest accruing on the certificates is likewise included in the hands of the person who subscribed out of his taxable income. Interest on the six-year VI Issue certificate, which is deemed to be reinvested under rules 19 and 28 of the National Savings Certificates (VI Issue) Rules, 1981, satisfies the test of having been paid out of income chargeable to tax and so itself qualifies for the deduction. Where a karta subscribes in the name of a member of the Hindu undivided family and the family shows that the money came out of its taxable income and that the beneficial ownership vests in the family, the family gets the deduction.
Certain issues had been raised about the eligibility of subscriptions to these certificates for deduction, and the Board answered them.
501. Subscriptions to National Savings Certificates (VI Issue/VII Issue) - Clarifications on certain issues regarding their eligibility for deduction under the section
1. Under section 80C(2)(h ), an individual or Hindu undivided family or an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu is entitled to a deduction in respect of any sums paid in a previous year out of his or its income chargeable to tax, as subscription to any such security of the Central Government as may be specified in the Official Gazette. National Savings Certificates (NSCs) VI and VII Issues have been specified as securities for the purposes of section 80C(2)(h) and the notification has come into force from April 2, 1983.
2. The following clarifications are issued in this connection :
(1) Whether income-tax exemption under section 8OC can be claimed by first named person in case of joint holding of NSCs VI Issue/VII Issue? The deduction under section 80C can be claimed by the person who has contributed the monies out of his income chargeable to tax. It can be claimed by the first named person in a joint holding if the first named person has so contributed the amount.
(2) Whether rebate of income-tax under section 80C will be available where (a) NSCs VI Issue/VII Issue are purchased in the name of spouse and minor children, and (b) jointly by husband and wife ? - The answer to question (1) will apply also here. The deduction under section 80C is to be given to the person who has purchased the NSCs out of his income chargeable to tax.
(3) Whether the interest accruing to the NSCs would be included in the hands of individual or in the case of person(s) in whose name(s) the subscription has been made? - The interest accruing on the subscription to the NSCs will be included in the hands of the person who has subscribed from his income chargeable to tax.
(4) Since the interest on 6-Year NSC VI Issue is deemed to have been re-invested whether the holder of the NSC-VI Issue is entitled to claim benefit of section 80C on this re-invested interest [Rules 19 and 28 of NSC-VI Issue Rules, 1981]?- The amount of interest re-invested will satisfy the test of having been paid out of income chargeable to tax to get the NSC and so will be entitled to deduction under section 80C.
(5) Whether a karta of a HUF can buy NSCs in the name of any member of the HUF ? - Where subscription to the NSCs in the name of any member of the HUF, is shown by the family to have been made out of its income chargeable to tax and the beneficial ownership in such certificates vests in the family, the family would be entitled to a deduction under section 80C with reference to such contribution.
(6) Whether the interest accrued on the subscription would be included in the hands of the individual or in the hands of the person in whose name the subscription has been made ? - The interest accrued would be included in the hands of the persons who purchased the NSC out of their income chargeable to tax.
Circular : No. 405 [F. No. 178/1/84-IT(A-I)], dated 15-1-1985 as corrected by Circular : No. 418 [F. No. 178/1/84-IT(A-I)], dated 2-5-1985.
In a section 80C claim on certificates standing in a spouse's or child's name, and in an assessment adding the accrued interest in the wrong hands.
A husband buys National Savings Certificates VI Issue for Rs. 20,000 in his wife's name out of his own taxable salary. On this circular the section 80C deduction is his, and the interest accruing on those certificates is also assessable in his hands. The deemed reinvested interest of a later year, say Rs. 2,400, again qualifies for deduction in his hands in that year.
Source: the Income Tax Department’s own published text — its page for this instrument.
