Exemption of interest on savings certificates under clause (15)(ii) – Interest on holdings in the names of wife and minor children whether eligible for exemption – Exemption in the event of death of one of the joint holder

1. Reference is invited to Circular No. 10 [XLVII-9]-D of 1958, dated 20-5-1958 and Circular No. 102 [F. No. 167/56/71 -IT(A-I)], dated 3 -2-1973 [Clarifications 2 and 3 on p. 1.161 and p. 1.163, respectively].

2. It has been brought to the notice of the Board by the National Savings Commissioner that some Income-tax Officers are not giving exemption from income-tax on tax-free savings certificates and accounts held in the names of the spouse and minor children of the assessee.

3. Under the rules governing the issue of the various savings certificates and accounts, deposits may be made by an adult individual in his own name or by two adults jointly or by a guardian on behalf of a minor.  Various limits have been laid down for these accounts and certificates for individuals and for two persons jointly.  Where any assessee makes an investment in the name of his wife or minor child, the income derived from such investments is included in the total income of the assessee under the relevant provisions of the Income-tax Act, 1961.

4. The Board had decided that where investments are made by an assessee in the names of his wife and minor children, the exemption from income-tax should be allowed and in respect of the investments made in the name of his wife or each minor child up to the limit of the maximum amount that may be invested in their names in the tax-free savings certificates.  This decision was communicated vide Board’s Circular No. 10(XLVII-9)-D of 1958 [F. No. 39(3)IT/57]. Similarly, in Board’s Circular No. 102, the Government’s decision was communicated that in the case of joint holdings, the interest earned is free of income-tax even when one of the joint holders dies.  The limits up to which the investments could be made by an individual and by two persons jointly were given in the Circular No. 102.

These limits have since been increased.  The new limits are as follows :

    Limits up to which
investments can
be made singly
Limits up to which
investments can
be made jointly
1. National Savings Certificates, II & III Issues combined Rs.  75,000 Rs. 1,50,000
2. Post Office Savings Bank Account Rs.  25,000 Rs.  50,000
3. 10-Year CTD Accounts (including 15-Year CTD Accounts since discontinued) Rs. 1,20,000 Rs. 2,40,000
4. Public Provident Fund Rs.  20,000
in a year
not allowed

These limits are for the entire period of the accounts standing in the name of the assessee or his minor children and wife.

5. The certificates covered under section 10(15)( ii) which have since been discontinued but interest on which continues to be free of income-tax are as under:

1. 10-Year TSDCs and 10-Year DDCS.

2. PO Cash Certificates.

3. 12-Year National Plan Savings Certificates.

4. 10-Year National Defence Certificates.

5. 10-Year National Plan Certificates.

The limits for these certificates are inclusive of limits for National Savings Certificates II and III Issues mentioned above.  For example, if a person holds NSCs II and III Issues up to Rs. 35,000 in his own name, Rs. 30,000 in the name of his wife, Rs. 10,000 in the name of his minor son and Rs. 15,000 in the name of his minor daughter, his entire holdings amounting to Rs. 90,000 will be free of income-tax as the holdings in each person’s name are within the limits prescribed, and will not be limited to a total of Rs. 75,000.

6. The Board have decided that if in any case involving the application of the above provisions relief had not been given as stated above, suitable remedial measures should be taken to grant such-relief.

Circular : No. 218 [F.  No. 184/5/76-IT(A-I)], dated 30-4-1977

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