512. Repayment of amount on the closure of account under NSS - Taxability of
Circular No. 534 was issued by the Central Board of Direct Taxes on 7 April 1989. Its subject is 512. Repayment of amount on the closure of account under NSS - Taxability of.
Holds that the amount paid to an assessee on closing a National Savings Scheme account after the stipulated three-year period is deemed to be his income of the previous year of withdrawal under section 80CCA(2)(a). The Board reasons that the clause speaks of the amount to the credit of the assessee being withdrawn in whole or in part, and on closure the whole of it is withdrawn, so the closure proceeds are squarely within it. Rule 9 of the National Savings Scheme Rules, 1987, notified by GSR No. 335(E) dated 30 March 1987, permits closure on the expiry of three years from the end of the year of the last deposit, and at any time after the account holder's death. The Board adds that, as it had said in circular No. 532 dated 17 March 1989, section 80CCA(2) does not apply to the amount paid to the legal heirs on closure after the account holder's death.
A question had been raised whether an amount paid on closure of the account after the three-year period was taxable as income of the relevant previous year under section 80CCA(2).
| Under the 1961 Act | Now |
|---|---|
| s.80CCA | no counterpart recorded |
512. Repayment of amount on the closure of account under NSS - Taxability of
1. Clause (a ) of sub-section (2) of section 80CCA of the Income-tax Act, 1961, provides that where any amount standing to the credit of an assessee under the National Savings Scheme in respect of which a deduction has been allowed under sub-section (1) of that section (including interest thereon) is withdrawn in whole or in part in any previous year, the amount withdrawn shall be deemed to be the income of the assessee of that previous year.
2. The Central Government has notified the National Savings Scheme Rules, 1987 under Notification GSR No. 335(E), dated 30-3-1987. Rule 9 of the said Rules provides for the closure of an account opened under the scheme. Under the said rule, the closure of an account is permitted on the expiry of three years from the end of the year in which the last deposit was made, but in the event of the death of the account holder, the account can be closed at any time after his death.
3. A question has been raised whether the amount paid to an assessee on the closure of the account by him after the expiry of the stipulated period of three years would be treated as the income of the relevant previous year in terms of sub-section (2) of section 80CCA.
4. It is, therefore, clarified that the amount withdrawn by an assessee on the closure of the account would also fall within the purview of sub-section (2) of section 80CCA. It may be noted that clause (a ) of sub-section (2) of the said section refers to withdrawal of the amount to the credit of an assessee, in whole or in part. On the closure of an account, the whole amount to the credit of the assessee in the account is withdrawn by him. Hence, the amount paid to the assessee on the closure of the account is clearly covered by sub-section (2) of section 80CCA and will be deemed to be the income of the assessee of the previous year in which the amount is withdrawn on the closure of the account. However, as clarified vide Board’s Circular No. 532, dated 17-3-1989, the provisions of sub-section (2) of section 80CCA will not apply in respect of the amount paid to the legal heirs of the assessee on the closure of his account in the event of his death.Circular : No. 534, dated 7-4-1989.
In an assessment where the year's National Savings Scheme closure proceeds are added to income, or in an intimation adding an unreported withdrawal.
A depositor whose last deposit was made in a year closes the account after the three years in rule 9 have run and receives the whole balance with interest. That entire sum is deemed to be his income of the previous year in which he received it. Had he died and his legal heirs closed the account, the sum paid to them would not be taxed under section 80CCA(2).
Rules it names. Rule 9 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.