Tax Talk: Oct 3 ::Business Line

I sold a house in October 2011 and invested the capital gains of Rs 50 lakh in NHAI 54EC bond 2011-12 (Tranche-XII). The bonds (Rs 500 at Rs 10,000 each) carry a deemed date of allotment of November 30, 2011 and due for redemption on November 30, 2014. I'm due to receive 6 per cent interest i.e. Rs 3 lakh annually.

i) Do I get the first interest paid out on April 1, 2012 since the prospectus states that the interest on the bonds will be payable for the period from the deemed date of allotment till the last day of the financial year i.e. March 31 on the first bank working day of the next financial year?

ii) Is the interest paid out each year taxable as “income from other sources”?

iii) Is the principal amount to be paid out on redemption on November 31, 2014 tax-exempt?

— Diksha

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i) According to the NHAI 54EC Bond 2011-12 (Tranche XII) Scheme, the interest is payable annually on the first bank working day of the next financial year. Hence, you will be eligible to receive interest payment on April 1, 2012 proportionally from the deemed date of allotment till the last date of the financial year i.e. from November 30, 2011 to March 31, 2012. In case you have not received the interest payment till now (which was due on April 1, 2012), please contact NHAI.

ii) The yearly interest paid on these bonds is taxable under the head ‘income from other sources’. However, TDS is not deducted from the interest payment as there is a specific exemption given for non-deduction of tax at source, on the interest accrued/received on these bonds, by the Government. Hence, the tax on the interest income needs to be deposited by you as advance tax/self assessment tax, as the case may be.

iii) The principal amount paid on redemption (after three years of investment) on November 30, 2012 is not taxable in your hands.

To claim exemption from TDS on income from securities and other instruments, the age limit for senior citizen was 65 years. Now it has been lowered to 60. Whereas the caption in the form 15H indicates the individual should be 65 years and above.

Also what are the other conditions to fulfil for TDS exemption other than age criteria for 15H form? What is the effective date for implementation of age lowering?

— M.P. Rastogi

The Finance Act, 2011 amended the effective age of a senior citizen being a resident from 65 years to 60 years for the purposes of application of tax slabs under the Income-tax Act, 1961 for Assessment Year 2012-13 onwards. However, the same did not apply to section 197A (1C), which deals with “non deduction of TDS in case of resident senior citizen”. To bring in uniformity in the law, Finance Act, 2012 amended the section to decrease the age to 60 years in section 197A (1C) w.e.f. July 1, 2012. Hence for the purpose of Form 15 H (declaration for no deduction of tax in the case of a senior citizen) the effective date of implementation of lowering of age is July 1, 2012.

Other conditions that need to be fulfilled for the purpose of Form 15 H in case of resident individual are:

It is mandatory to quote the PAN of the individual. (However, recently Karnataka High Court has directed banking and financial institutions to stop insisting upon PAN from small investors whose income is below taxable limit.)

Aggregate income of the asseessee should not exceed the maximum amount chargeable to tax during the given financial year.

Form should be filled in duplicate.

Form should be delivered before or at the time of receiving the amount and not after receiving it.

The notes given in the form must be complied with.