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Tax on drawings from NSS 1987

The amount of interest was allowed as deduction under Sec. 80CCA for deposits made under National Savings Scheme, 1987. The scheme was in force from April 1, 1987 to March 31, 1992. The inference of the reader that the entire amount as and when drawn will be taxable and that his liability is not limited only to interest, is correct.

The amount is payable to the nominee on the death of the account-holder. When the nominee receives the amount after the death of the account-holder, the character of the receipt in his hands is a capital receipt. He is not bound by the conditions of deposits as he is not the depositor. This has been conceded in Board Circular No. 532 dated March 17, 1989 (1989) 176 ITR (St.) 327 in the following words:

“2. A question has been raised whether the amount received under the National Savings Scheme by the legal heirs of an assessee after his death can be deemed to be the income of the legal heirs under Sec. 80CCA(2) of the Act.

3. The Board is of the view that where the amount credited to the account of an assessee under the National Savings Scheme is paid on the death of the assessee to his legal heirs, the amount so paid will not fall within the ambit of Sec. 80CCA(2) of the Act, and, accordingly, the amount of such repayment will not be chargeable to tax in the hands of the legal heirs”.

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