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More clarifications on Senior Citizens Savings Scheme, 2004

A reader is a pensioner and a senior citizen. His wife also is a State Government pensioner and a senior citizen. They have contributed to deposits in Senior Citizens Savings Scheme, 2004 in a joint account. If only half the interest received is taxed in his hands, he would not be liable for payment of tax. Part of the deposits are from his wife's resources. She does not have tax liability. He would like to be advised on the following:

Whether Form 15G or 15H has to be filed and

whether the authorities would consider the gross amount as belonging to him or his wife, so as to require tax deduction. In such circumstance, will he be justified in filing From 15G or 15H?

Is there any prospect of TDS being abandoned in view of the widespread claim from the senior citizens?

There has yet been no withdrawal of the Circular requiring tax deduction at source from interest on such savings scheme. It has, however, been clearly stated that persons above 65 years of age can file Form 15H, while other subscribers to senior citizens scheme, who are eligible to make deposit because of their retirement age, can file Form 15G.

As for the interest in joint account, such interest will belong to the reader or his wife depending upon the source from which the deposit had been made. If the reader has made deposit out of his own savings, the entire income will be treated as belonging to him. Where the source cannot be identified, while both have substantially contributed to the deposit and both are senior citizens, the interest could be treated as belonging to 50 per cent each. If either the reader or his wife has contributed their own funds for the benefit of the other, such interest income attributable to such fund should be assessable in his/ her hands under section 64(1)(iv) of the Act.

The Board has given the following clarification as regards tax deduction at source on interest from joint deposits in Circular No.256 dated 29th May, 1979 (1980) 126 ITR (St.) 22 as under:

"3. The Board are advised that in the case of a deposit in joint names, say in two names, in the absence of any proof to the contrary, both the persons can be treated as payees for the purpose of deduction of tax under section 194A of the Act. As such, unless the person paying the interest on such deposit(s) has definite information about the beneficial ownership of the deposit(s), the interest payable under a joint account can be aggregated with the amount of interest payable by that person to any one of the payees in their separate or independent accounts. The persons responsible for deducting the tax are advised that, in the absence of any information to the contrary, they may aggregate the interest on a joint account with the interest on deposit in the individual's account who has higher interest income. Thus, if there is a deposit of Rs. 5,000 in a joint account of M/s. XY and there are deposits of Rs. 4,000 in the name of X and Rs. 3,000 in the name of Y with the same payer, the rate of interest being 12% per annum, the payer may aggregate the interest in the joint account amounting to Rs. 600 with the interest of Rs.480 on the deposit of X and since the aggregate interest during a financial year exceeds Rs.1,000 he may deduct the tax at the prescribed rate. The fact that the joint account may be styled as M/s. YX instead of M/s. XY will not make any difference.

"4. The certificate of deduction of tax at source under section 203 of the Act will be given to the person in whose name the interest on joint account has been aggregated and a suitable mention of the existence of the joint account and the amount of the deposit will be made in the said certificate.

"5. Credit for the payment of tax deducted at source under section 199 of the Income-tax Act will be given to the person in whose name the certificate under section 203 has been issued.

"6. If any objection is taken to the deduction of tax at source in the above manner or it is contended that the joint account holders constitute a separate person and no deduction of tax at source should be made, it will be up to them to point it out to the person paying the interest by leading evidence, i.e., by filing affidavits or statements in the manner laid down in the proviso to sub-section (1) of section 194A of the Act. The person paying the interest may act according to the affidavits or statements which the joint account holders may file before him in discharging his responsibilities u/s. 194A of the Act.

"7. It may be clarified that the manner of deduction of tax at source is without prejudice to the powers of the Income-tax Officer to determine the beneficial owner of the deposit in the joint names and to tax the interest income accordingly at the time of assessment."

It is on this basis that liability has to be understood and either Form 15G or 15H filed with affidavit/s as to their respective interest, if both are interested and if there is no liability to tax.

If there is liability on such basis, tax deduction under the present law will be made. Such deduction can only be prospective from the amount due starting from July, when it becomes payable, but there is confusion as to whether deduction should be made from the past disbursements.

The law does not permit the same and such deduction, if made, would create a lot of additional trouble for the post office/ banks as well as senior citizens.

Hopefully, there will be some rethinking on the subject.

S. RAJARATNAM

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