512. Repayment of amount on the closure of account under NSS – Taxability of
1. Clause (a ) of sub-section (2) of section 80CCA of the Income-tax Act, 1961, provides that where any amount standing to the credit of an assessee under the National Savings Scheme in respect of which a deduction has been allowed under sub-section (1) of that section (including interest thereon) is withdrawn in whole or in part in any previous year, the amount withdrawn shall be deemed to be the income of the assessee of that previous year.
2. The Central Government has notified the National Savings Scheme Rules, 1987 under Notification GSR No. 335(E), dated 30-3-1987. Rule 9 of the said Rules provides for the closure of an account opened under the scheme. Under the said rule, the closure of an account is permitted on the expiry of three years from the end of the year in which the last deposit was made, but in the event of the death of the account holder, the account can be closed at any time after his death.
3. A question has been raised whether the amount paid to an assessee on the closure of the account by him after the expiry of the stipulated period of three years would be treated as the income of the relevant previous year in terms of sub-section (2) of section 80CCA.
4. It is, therefore, clarified that the amount withdrawn by an assessee on the closure of the account would also fall within the purview of sub-section (2) of section 80CCA. It may be noted that clause (a ) of sub-section (2) of the said section refers to withdrawal of the amount to the credit of an assessee, in whole or in part. On the closure of an account, the whole amount to the credit of the assessee in the account is withdrawn by him. Hence, the amount paid to the assessee on the closure of the account is clearly covered by sub-section (2) of section 80CCA and will be deemed to be the income of the assessee of the previous year in which the amount is withdrawn on the closure of the account. However, as clarified vide Board’s Circular No. 532, dated 17-3-1989, the provisions of sub-section (2) of section 80CCA will not apply in respect of the amount paid to the legal heirs of the assessee on the closure of his account in the event of his death.
Circular : No. 534, dated 7-4-1989
