The Hindu : Refund of NSS 1987 deposits should be without tax

Online edition of India's National Newspaper
Monday, Nov 03, 2003

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Refund of NSS 1987 deposits should be without tax

QUESTION: I am an Account Holder of National Savings Scheme, 1987. In spite of several representation, the Government has refused to allow withdrawal without payment of income tax, though a similar featured LIC plan was allowed to be withdrawn long back. From March 1, 2003, the Government has drastically reduced the interest to 7.5 per cent. My question is, is it legal to reduce the interest as it was opened with an assured interest rate. Secondly, is it ethical to deny withdrawal, while they arbitrarily reduce the rate of interest? The depositors who are mostly senior citizens should not be squeezed.

ANSWER: The drastic reduction in the interest rate in respect of deposits and interest, which are taxable on withdrawal, does appear to be a breach of faith more than other mid-term reduction in interest rates. It may be made more palatable to the depositors, if permission is granted for withdrawal on a staggered basis, at least a specified proportion of the amount without tax or with reduced tax applicable to such withdrawal commensurate with the reduced rate of interest, so as to minimise the agony of the depositors from the abnormal liability, because of the bunching effect on bulk withdrawal of moneys lying with the Government for more than a decade. Alternatively, reduced rate of interest should apply only to fresh deposits.

The only reasonable way to reduce interest burden for the Government is giving the option to depositors to withdraw the amount with the tax effect of bunching the incomes neutralised. Unilateral alteration of terms by the Government and public sector on deposits though may be permitted in the small prints in the issue documents it does appear only as ethical as Shylock's slogan pleading for `sanctity of contract'. It is the tie-up of reduction in interest rate with tax liability on withdrawals, which is a harder reality then mere reduction in rate of interest for subscribers of NSS 1987.

Refund application

Q: I am an agent for savings schemes at post office receiving commission at Rs. 800 (about) per month. Tax was deducted, though there is no other income. Please advise whether I have to file a return annually and then get refund. There are 40 agents attached to our post office itself in similar situation.

A: Commission, which an agent receives is liable for tax deduction under Sec. 194H, if the income falls above the limit. The income up to Rs. 800 per month exceeds the annual income of Rs. 2,500 for which tax deduction is inevitable, unless the payee gets a certificate of non-deduction from the assessing officer, who may issue the same after satisfying himself that his income with reference to the past history of the last three years is not likely to be liable for tax. Otherwise, tax deduction become necessary. Self-declaration as for interest for avoidance of tax deduction at source is not available in respect of commission. Where tax has been deducted as in the reader's case, but there is no liability, refund has to be applied for under Sec. 237 of the Income-tax Act. Sec. 239 prescribes application in Form No. 30 for claim of the refund. Form No. 30 requires that it should be accompanied by a return of income. It is needless to point out the tax deduction certificate, which is bound to be given by the post office, also should accompany such return.

Whether cash can be treated as stock-in-trade of money lenders

Q: A new proviso inserted in Sec. 132 of the Income-tax Act by Finance Act, 2003 with effect from June 1, 2003 stipulates that no seizure should be made of stock-in-trade of a business during a search. Kindly clarify whether cash would fall within the definition of stock-in-trade in the case of a money lender. In such a case can unexplained cash found be seized?

A: Stock-in-trade is generally understood as goods, which are kept for sale or resale. Cash is not commercially understood as stock-in-trade even for a moneylender. But then cash, which is unexplained, can always be seized even after the amendment to law, while if it can be explained, whether it is stock-in-trade or not, it makes no difference. Seizure of unexplained cash cannot be resisted on the ground that it is stock-in-trade.

Treatment of heart ailment — whether qualifies for deduction?

Q: I am a heart patient spending about Rs. 10,000 per annum. While in service, I was eligible for deduction by way of reimbursement from salary income. I am now a retired person not getting any reimbursement. Is it possible for me to get deduction under Sec. 80DDB?

A: Sec. 80DDB allows a deduction up to Rs. 40,000 or the amount actually spent, whichever is less, only in respect of specified illnesses listed under Rule 11DD. The listed illnesses are neurological diseases like dementia, ataxia, aphasia etc., and Parkinsons' disease, where it is chronic and protracted with certified disability exceeding 40 per cent. Deduction is also available for cancer, AIDS, chronic renal failure, hemophilia and Thalassemia. In any case, such prescribed illness has to be certified in Form 10-I by a specialist with post-graduate qualification registered with the Indian Medical Association. This provision has undergone change from assessment year 2004-05 relating to the income of the financial year 2003-04. The illnesses for which deduction was available continues to be the same, while the certificate now has to be from a specialist working in a Government hospital in a revised format, which is yet to be prescribed.

Heart ailment does not appear as one of the listed illnesses, so that no deduction will be available for the reader.

S. Rajaratnam

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