54. Deduction admissible for deposits made in National Savings Scheme to be allowed while computing income of employees for purpose of deduction of tax at source
1. I am directed to invite a reference to this Ministry’s Circular No. 489 [F.No. 275/51/87-IT(B)], dated 25-6-1987, wherein the rates of income-tax deduction during the year 1987-88 from the payment of income chargeable under the head “Salaries” under section 192 were intimated.
2. It may be added that the Finance Act, 1987 has inserted a new section 80CCA. Under the new provisions, deduction will be allowed to an individual, a Hindu undivided family and certain categories of associations of persons or bodies of individuals in respect of the deposits made in the National Savings Scheme. The deduction will be restricted to 50 per cent of the amount deposited, as does not exceed Rs. 20,000 in a previous year. The maximum deduction admissible on this account is limited to Rs. 10,000 per annum. In case the depositor makes any withdrawals from the amount standing to his credit in the National Savings Scheme together with the interest accrued thereon, an amount equal to 50 per cent of the amount so withdrawn shall be deemed to be the income of the taxpayer for the previous year in which such withdrawal is made. Interest on the deposits made under the National Savings Scheme will be taxable only in the year of withdrawal and to the extent of fifty per cent thereof. The Department of Economic Affairs in the Ministry of Finance by their notification No. GSR 335(E), dated 30-3-1987.
3. The deductions admissible under section 80CCA in respect of the deposits made by the employees out of their income chargeable to tax in the said National Savings Scheme may be allowed by the drawing and disbursing officer while computing the income of the employees for the purpose of deduction of tax at source. These instructions may please be brought to the notice of all disbursing officers and State undertakings under the control of the State Governments, etc.
4. It may be noted that the deduction admissible under this section is in addition to the deduction admissible under section 80C.
Circular : No. 501 [F. No. 275/109/87-IT(B)], dated 20-1-1988.
