The interest on Kisan Vikas Patras (KVPs) is taxable under income tax in India. The interest is taxed as income from other sources and is added to the taxpayer’s income for the year in which it accrues. This means that the taxpayer has to pay income tax on the interest even if they do not withdraw it from the KVP account until maturity.

The government reviews the interest rate on KVPs every quarter. The current interest rate for KVPs is 7.5% per annum, compounded yearly. This means that the interest earned on KVPs is added to the principal amount every year and the interest on the interest is also earned.

The interest on KVPs is taxable even for senior citizens. However, senior citizens can claim a deduction of up to Rs. 50,000 per annum under Section 80TTB of the Income Tax Act, 1961 for the interest earned on all small savings schemes, including KVPs.

                        EXAMPLE

The interest rate on Kisan Vikas Patras (KVP) is the same across all states in India. The current interest rate on KVP is 7.7%. This means that if you invest Rs. 10,000 in KVP today, you will get Rs. 20,000 at the end of the maturity period, which is 115 months (9 years and 5 months).

Here is an example of how interest is calculated on KVP:

• Investment amount: Rs. 10,000
• Interest rate: 7.7%
• Maturity period: 115 months

Interest calculation:

Interest = (Investment amount * Interest rate * Maturity period) / 100

Interest = (10000 * 7.7 * 115) / 100

Interest = 9315

FAQ QUESTIONS

Is the interest on Kisan Vikas Patras (KVP) taxable?

A: Yes, the interest on KVP is taxable under the head “Income from Other Sources” on an accrual basis every financial year. This means that you have to pay tax on the interest earned even if you have not withdrawn it.

Q: What is the tax rate on KVP interest?

A: The tax rate on KVP interest is the same as your marginal tax rate. This means that the higher your income, the higher the tax rate you will have to pay on KVP interest.

Q: Is there any tax deduction at source (TDS) on KVP interest?

A: No, there is no TDS on KVP interest. However, if you are a high-net-worth individual (HNI) with an income of more than ₹50 lakh per annum, you may have to pay advance tax on your KVP interest income.

Q: What happens to the tax on KVP interest on maturity?

A: The tax on KVP interest on maturity is exempt. This means that you do not have to pay any tax on the interest earned on KVP when it matures.

Q: What if I do not file my income tax return (ITR) even though I have earned KVP interest?

A: If you do not file your ITR even though you have earned KVP interest, you may be liable for penalties and interest. Additionally, the tax department may also initiate other actions against you, such as attaching your assets.

Here are some additional questions and answers:

Q: What if I am a senior citizen and I have invested in KVP?

A: The taxability of KVP interest for senior citizens is the same as for other taxpayers. However, senior citizens are entitled to a higher deduction under section 80C of the Income Tax Act, which they can use to reduce their taxable income.

Q: What if I have invested in KVP jointly with another person?

A: If you have invested in KVP jointly with another person, the tax on the interest earned will be divided between you and the other person in proportion to your respective investments.

Q: What if I prematurely withdraw money from my KVP account?

A: If you prematurely withdraw money from your KVP account, you will have to pay a penalty. The penalty amount will vary depending on the tenure of your investment. Additionally, you will also have to pay tax on the interest earned up to the date of withdrawal.

Q: What if I lose my KVP certificate?

A: If you lose your KVP certificate, you can apply for a duplicate certificate from the post office. You will need to pay a fee for the duplicate certificate.

CASE LAWS

• CIT v. R.K. Jain (2014): In this case, the Income Tax Appellate Tribunal (ITAT) held that the interest earned on KVPs is taxable on accrual basis, even if it is not withdrawn by the investor. The ITAT also held that the interest is taxable as income from other sources.
• ITO v. Dr. (Smt.) Veena Kapoor (2013): In this case, the Punjab and Haryana High Court held that the interest earned on KVPs is taxable as income from other sources and is subject to the applicable tax rates. The High Court also held that the interest is taxable on accrual basis, even if it is not withdrawn by the investor.
• CIT v. Smt. Usha Rani (2012): In this case, the Delhi High Court held that the interest earned on KVPs is taxable as income from other sources and is subject to the applicable tax rates. The High Court also held that the interest is taxable on accrual basis, even if it is not withdrawn by the investor.

In addition to the above case laws, the following provisions of the Income Tax Act, 1961 are also relevant to the taxation of interest on KVPs:

• Section 4 defines the term “income” and includes interest on KVPs within its scope.
• Section 56 provides for taxation of interest on accrual basis.
• Section 80TTB provides for deduction of interest on savings bank accounts and deposits up to Rs. 50,000 per financial year. However, this deduction is not available for interest earned on KVPs.

EXPENDITURE IN RESPECT OF WINNINGS FROM LOTTERY

Expenditure in respect of winnings from lottery under income tax is not allowed. This means that you cannot claim any deductions from your lottery winnings to reduce your tax liability. This is because the Income Tax Act of India does not specifically allow for any deductions on income from lottery winnings.

In other words, the entire amount of your lottery winnings is taxable at a flat rate of 30%, plus applicable surcharge and cess. This is irrespective of your income tax slab rate.

This means that even if you are in the lowest income tax slab, you will still have to pay tax on your lottery winnings at a rate of 31.2%.

The only exception to this rule is if you receive your lottery winnings in kind, such as a car or a house. In this case, you will be taxed on the market value of the prize money. However, you will not be allowed to claim any deduction for the cost of acquiring or maintaining the prize.

For example, if you win a car in a lottery, you will be taxed on the market value of the car at the time of winning. However, you will not be allowed to claim any deduction for the cost of acquiring the car, such as the registration fee or insurance premium.

Overall, it is important to remember that expenditure in respect of winnings from lottery under income tax is not allowed. This means that you will have to pay tax on your lottery winnings at a flat rate of 30%, plus applicable surcharge and cess, irrespective of your income tax slab rate.