SECTION 80L – INTEREST ON SECURITIES, ETC.
582. Whether interest earned on principal amount of deposits under reinvestment deposit/recurring deposit schemes, can be said to have accrued annually and, if so, whether depositor is entitled to claim benefit of deduction in respect of interest which has accrued
1. Several banks are accepting deposits under the reinvestment deposit schemes, recurring deposit schemes, cash certificates and similar schemes. These schemes have been evolved to provide the public with an attractive medium of investment and simultaneously mobilise savings.
2. Under these schemes, a depositor invests a sum of money for a certain period of years and at the end of the contracted period, a lump sum payment is made to him. This lump sum amount comprises of the principal amount and the interest earned thereon. Normally the interest is credited to the depositor’s account at periodical intervals, but he is not entitled to collect such interest unless he decides to terminate the deposit. If he decides to terminate the deposit, he is entitled to receive back the principal amount plus interest thereon although at a reduced rate.
3. The question for consideration is whether the interest at the stipulated rate earned on the principal amount, can be said to have accrued annually and if so whether a depositor is entitled to claim the benefit of deduction, under section 80L, in respect of such interest which has accrued.
4. Government has decided that interest for each year calculated at the stipulated rate will be taxed as income accrued in that year. The benefit of deduction under section 80L will be available on such interest.
Circular : No. 243 [F. No. 178/65/77-IT (A-I)], dated 22-6-1978.