How is interest on pre-closure of senior citizens deposit reckoned?
Since I had foreclosed my Senior Citizen Deposit Account in the post office earning 9 per cent interest with a view to taking advantage of higher rate of interest available elsewhere, I had to suffer deduction of one per cent from the interest due to me for foreclosure as a penal charge. I would like to know whether I will be eligible for deduction of such penal charge from my taxable interest income?
The inference that what is deducted from interest payment at one per cent of the principal amount is a penal charge is not a proper description.
Interest payable is reduced by this amount charged for foreclosure so that it is only the net amount that is chargeable as interest. Hence, it is only the net amount received during the year from such interest account which would be taxable, though it tantamounts to a deduction of the loss suffered on foreclosure against gross interest income.
S. RAJARATNAM
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