TAXATION: Amount invested in purchase of NSC is eligible to deduction

If I transfer my NSC to my wife then who will be required to pay income tax on the interest income for that particular year? I pay tax at a higher tax slab rate than my wife.

Amount invested in purchase of National Savings Certificates (NSC) is eligible to deduction under section 80C of the Income-tax Act, 1961 (Act) up to the cumulative limit of Rs 150,000. The interest income earned on NSC is not exempt from tax as per the Act, however, as the same gets accrued and reinvested, it becomes eligible for deduction under section 80C of the Act. Hence, there is no tax liability on the regular accrual of interest on NSC. The interest income received on maturity is taxable as income from other sources. Also, an income arising from the transfer of any property by husband to wife without any adequate consideration shall be clubbed in the income of the husband. Thus, the interest income that shall be received on maturity will be included in your total income

Chirag Nangia, Director, Nangia & Co LLP

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