Find Out If You Can Avoid Income Tax On Your Kisan Vikas Patra Interest Income

A look at the taxability of Kisan Vikas Patra and the applicability of the section 80TTB deductions on the KVP interest income

Kisan Vikas Patra

Kisan Vikas Patra (KVP) is a saving certificate scheme launched by India Post in 1988. Presently, it is offering an interest rate of 7.5% per annum. The interest earned is taxed as per the specific rules of the Income Tax Act. The Act also specifies the rules on TDS deduction and tax on the maturity sum of a KVP.

  • KVP is a long-term fixed-income investment offered by the post office

  • The investment is not eligible for the section 80C tax benefits

  • Section 80TTB offers a deduction on interest income to senior citizens

  • Clarity is needed in the applicability of section 80TTB on KVP interest 

KVP Returns and Taxability

The KVP interest rate of 7.5% per annum compounds annually. At this rate, the investment made in it doubles in 115 months, or nine years and seven months. Being a small saving scheme, it requires a minimum investment of only Rs 1,000 and can be made for any amount beyond it, in multiples of Rs 100.

KVP is not eligible and its maturity amount is fully taxable. However, this amount is not subject to TDS deductions. The interest earned on KVP investment is taxable under the income head, ‘income from other sources’. It is taxed on an accrual basis and calculated every financial year, for taxation purposes.

Also Watch:All you need to know about KVP

Section 80TTB Applicability

Section 80TTB allows a deduction of up to Rs 50,000 from the gross total income in a financial year. A taxpayer who is aged 60 years or above at any time during the financial year, is eligible for this deduction.

This amount can be deducted from specific incomes only, namely –

  • Interest on a savings account or fixed deposit

  • Interest on deposit in cooperative banking society, cooperative land mortgage bank and cooperative land development bank 

  • And the interest on post office deposits

Section 80TTB and KVP

Contradictory views are offered by experts when it comes to the applicability of section 80TTB deductions on KVP interest income. 

KVP is a post office instrument, and section 80TTB allows interest on post office deposits as deductions. However, unlike a savings account or an FD, KVP is not a deposit. It is more in the nature of bonds. And yet, unlike a bond, it cannot be freely bought or sold. KVP is transferred only in the case of death or court order. 

Due to its contradictory features, there is no clarity on the applicability of section 80TTB on KVP interest. A return filed while claiming section 80TTB benefits on KVP might as well attract notice from the Income Tax Department.

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Also Read: Here are the latest changes made to the KVP

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