Circular No. 687

What this is

Circular No. 687 was issued by the Central Board of Direct Taxes on 19 August 1994. Its subject is 454. Taxability of interest accrued on the Kisan Vikas Patras.

What it does

Supplies the figures needed to assess interest on Kisan Vikas Patras on an accrual basis for the first two and a half years, a period the Department of Economic Affairs notifications had left uncovered. Those notifications, dated 23 March 1988, 16 December 1991, 24 April 1992 and 2 September 1993, had specified the amount payable after two and a half years and up to maturity but not before. The circular annexes a table, settled in consultation with that Department, giving for a Rs. 100 denomination certificate the rate of interest and the value at each half-yearly point from one year to maturity, in four columns according to when the certificate was bought: from 1 April 1988 to 15 December 1991, from 16 December 1991 to 23 April 1992, from 24 April 1992 to 1 September 1993, and from 2 September 1993. The values are computed on half-yearly compounding at the rate shown. Kisan Vikas Patras were introduced on 1 April 1988.

Why it was issued

Interest on these certificates has to be assessed on accrual, and the notifications did not provide the interest or the amount payable during the first two and a half years, so the accrual for those years had to be determined.

Who it reaches

• Holders of Kisan Vikas Patras returning interest annually on accrual
• Assessing Officers computing accrued interest in the early years of a certificate
• Practitioners reconstructing interest for a certificate bought in a particular window

The instrument, as the Board published it

454. Taxability of interest accrued on the Kisan Vikas Patras

Kisan Vikas Patras were introduced on 1st April, 1988. The Department of Economic Affairs, Ministry of Finance, in its notifications dated 23-3-1988, 16-12-1991, 24-4-1992 and 2-9-1993 had specified the amount payable on these after 2½ years and up to the date of maturity. However, interest and maturity amount during 2½ years had not been provided in these notifications.

2. As interest on these Patras has to be assessed to income-tax on accrual basis, the amount of interest accrued on these Patras during initial 2½ years has also been determined in consultation with the Department of Economic Affairs. The amount of interest accrued on investment in Kisan Vikas Patras by an assessee is to be calculated on the basis of the following table received from the Department of Economic Affairs wherein rate of interest and maturity amount for Rs. 100 denomination of Kisan Vikas Patras are given :

Period from the date of certificate to the date of its

Encashment

Purchased from 1-4-1988 to
15-12-1991

Purchased from
16-12-1991 to

23-4-1992

Purchased from
24-4-1992 to

1-9-1993

Purchased from
2-9-1993

Rate of interest

Maturity value

Rate of interest

Maturity value

Rate of Interest

Maturity value

Rate of Interest

Maturity value

(Notification
dated

23-3-1988)

(Notification dated
16-12-1991)

(Notification dated
24-4-1992)

(Notification dated
2-9-1993)

(1) 1 Year

10

1,100

12

1,120

12

1,120

11

1,110

(2) 2 Years

10

1,220

12

1,260

12

1,260

11

1,240

(3) 2 Years & 6 Months

10

1,280

12

1,340

12

1,340

11

1,310

(4) 3 Years

11

1,380

13

1,460

13

1,460

12

1,420

(5) 3 Years & 6 Months

11

1,450

13

1,550

13

1,550

12

1,500

(6) 4 Years

12

1,590

13.5

1,690

13.5

1,690

12.5

1,620

(7) 4 Years & 6 Months

12

1,690

13.5

1,800

13.5

1,800

12.5

1,730

(8) 5 Years

13

1,880

13.75

1,940

—

2,000

12.75

1,860

(9) 5 Years & 6 Months

—

2,000

—

2,100

—

—

—

2,000

Note : Maturity values cited are calculated on half-yearly compounding basis based on the rate of interest cited.

Circular : No. 687, dated 19-8-1994.

What to watch

• The right column depends on the date of purchase; the four purchase windows carry different rates and different values.
• The table is stated for a Rs. 100 denomination and has to be scaled to the actual investment.
• The values assume half-yearly compounding at the rate shown, which is how the circular says they were worked out.
• One cell of the table as supplied is incomplete, so check the figure against the relevant Department of Economic Affairs notification before using a particular year and purchase window.
• This relates to a small savings instrument whose rates were reset by later notifications; the table covers only certificates bought up to and from the dates it names.

Where you meet it

An addition for accrued interest on Kisan Vikas Patras in an assessment where the holder returned nothing until encashment.

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