How income tax on KVP is calculated
Premium- If the taxpayer follows ‘cash basis’ of accounting, interest from Kisan Vikas Patra (KVP) may be taxed in the year of its maturity/pre-mature encashment
How is income tax on Kisan Vikas Patra (KVP) calculated. Can tax on its interest be paid on a yearly basis?
— Rajiv Kaushik
If the taxpayer follows ‘cash basis’ of accounting, interest from Kisan Vikas Patra (KVP) may be taxed in the year of its maturity/pre-mature encashment. The same shall be taxable at the applicable slab rates for such year.
On the other hand, if the taxpayer follows ‘accrual basis’ of accounting, accrued interest for each year needs to be calculated basis the applicable interest rate and the same shall be taxable at the applicable slab rates for such respective years.
I have invested around ₹1 lakh in mutual funds. While withdrawing the amount, do I need to pay income tax if returns are more than ₹1 lakh after 10 years, especially if I don’t have any other income?
— Name withheld on request
We have assumed that you have invested in these mutual funds on or after 1 February 2018. Based on the limited facts available, if the unit of a mutual fund is held for more than 12 months (in case of an equity-oriented fund) or more than 36 months (in case of any other mutual fund), then the same would qualify as a long-term capital asset and taxation for the long-term capital gains income (LTCG) will be as follows:
a. Equity oriented mutual funds: As per section 112A of the I-T Act, 1961, LTCG exceeding ₹1 lacs will be taxable @10% (without adjusting for the cost inflation index) – plus applicable cess and surcharge;
b. Other mutual funds: As per section 112 of the Act, LTCG from the sale of units will be taxable @ 20% (after adjusting for the cost inflation index) – plus applicable cess and surcharge
Further, assuming that you qualify as a resident of India and you would not have any income other than the LTCG from the sale of mutual fund units in the year of such sale while computing the tax liability as specified above, the LTCG shall be reduced by the maximum amount which is not chargeable to income-tax (i.e. currently ₹2.5 lakh for individuals below 60 years of age). Also, depending upon the income level, relief under section 87A (available currently) may be evaluated on tax liability arising under section 112 of the Act on the sale of mutual funds other than equity-oriented mutual funds. This is subject to the prevailing tax rules in the year of sale.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.