Pension is treated as salary for taxation purposes

I have taken National Saving Certificates (NSC) worth Rs. 20,000 in 2005-2006. I never claimed the NSC accruals so far.

1. Can I claim the interest on the Rs. 20,000 in this financial year (2009-2010)?

2. If I do not claim any interest till the point of maturity, then all accumulated interest may become taxable. Is this correct?

3. At maturity suppose I get a total amount of Rs. 38,000 (Rs. 20,000 + Rs. 18,000 interest). Can I show this Rs. 18,000 interest as income & deduct it from section 80C?

Ravi Kurtadikar

The portion of Sec. 80C, related with NSC states, ?Any sums paid or deposited in the previous year by the assessee as subscription to any such savings certificate??.

The interest accrued on NSC for a financial year, for the first five years out of its term of six years is deemed to deposited in the NSC during that financial year. Consequently, if you have not claimed the benefit of Sec. 80C during the year of its accrual, it is not possible for you to claim the same for any subsequent years.

The tax is also required to be paid on accrued interest. If you have failed to pay it, you may pay the same during any subsequent years, along with the interest for late payment of tax.

I have a query regarding leave encashment. I resigned from my employment in a private limited company in Bangalore and received leave encashment as part of my termination proceeds. However, the employer has deducted tax on the same since I had resigned and not retired.. I shared the decision in CIT v R.J. Shahney (1986) 159 ITR 160(Mad) with my employer wherein it is specifically mentioned that benefit of Sec. 10(10AA) is applicable even in cases of voluntary resignation. However, my employer is still taxing the leave encashment. The employer?s comments are, ?”Yes, you are right. The decision quoted by you is applicable for the companies located in Tamilnadu. Since we operate from Karnataka, we cannot use this case law. However, you can claim refund in your tax return. Please consult your tax consultant.”

Would appreciate the help in this regard.

?Deepak Agarwal

As per Sec. 10(10AA), ?Cash equivalent of leave salary payable to a government employee in respect of leave to his credit at the time of his retirement on superannuation or otherwise, is free from tax. For other employees, this exemption is subject to ??

The phrase retirement on superannuation or otherwise has caused a lot of confusion and consequent litigations. We hope the authorities define the meaning of ?or otherwise? unambiguously, otherwise these words will continue to be interpreted differently by different persons.

In respect of leave encashment, CIT v Malhotra 142CTR325 (Bom) has observed, ?On acceptance of resignation the employee stands retired from service. The word ?retirement? has not been used in the restricted sense to mean ?retirement on superannuation?. On the other hand it is clear that it has been used in the widest possible terms to mean and include all cases of retirement, whether on superannuation or otherwise. What is relevant is ?retirement?. How it took place is immaterial for the purpose of the clause. It is therefore clear that on retirement, even on resignation, the employee will be entitled to the benefit of the exemption.?

Unfortunately, some of the employers and even ITOs adopt their own views, whenever and wherever it is convenient for them to do so.

You will do well by claiming the exemption while filing your returns. Your employer is erring on the safe side by adopting the view that the High Court decisions are applicable to the state in which the court is located. For other regions, it has only a persuasive value.

I am a senior citizen, aged 71. I retired from central government. My pension is my only source of income. I am desirous of applying for a PAN card. So far I am below the taxable limit. In the PAN application form should I fill myself as a ?salaried employee?? And who I should mention is the employer? Pension is disbursed from an office in Delhi and not by the institution where I worked.

?P R V Raghavan

Pension is treated as salary for taxation purposes. Your employer is the institution where you worked since the actual source from where you get the payment is immaterial.

ITR-1 meant for Individuals having salary and interest income only is the form you are required to use.

I have recently started earning. To make provision for tax saving, I deposit Rs. 70,000 per year in PPF. Could you please advise me whether I should deposit the above amount in monthly installments between 1st and 5th or should I be investing an annual lump sum? Which would be the right time for deposit with reference to taxation / income earning?

?Kaykhusru Lawyer

Contributions to PPF need no longer be necessarily out of the income chargeable to tax. The 8% tax-free interest is quite attractive for many individuals. Such persons should make as much contribution to PPF as soon as is possible, either in one or many installments, but necessarily between the 1st and the 5th of the month so as to earn interest thereon for the month and subsequently thereafter.

The authors may be contacted at wonderlandconsultants@yahoo.com