Investors who have invested in Kisan Vikas Patra (KVP) often wonder about the tax implications on their investment, particularly when it comes to the interest earned.
Unlike certain investments where Tax Deducted at Source (TDS) is deducted on interest received, KVP does not have TDS deductions.
Therefore, it becomes necessary to include the interest earned on KVP in one’s taxable income and disclose it in the Income Tax Return (ITR).
This interest is also reflected in the annual information statement, known as Form 26AS. But what about tax liability upon selling Kisan Vikas Patra? Are there any taxes applicable to the interest earned? Read on to find out.
It is important to note that assuming you are not required to maintain books of account or get them audited under the provisions of the Income Tax Act, 1961, tax is calculated on income from other sources as per Section 145 of the Act.
The method of charging interest, whether on a cash basis or mercantile basis, plays a significant role in tax liability.
If interest is charged regularly on a cash basis, it may be taxed at the time of maturity. Conversely, if interest is charged on a mercantile basis, tax will be levied on an accrual basis every year.
In case there is a discrepancy in interest, it is advisable to cross-check the interest earned year after year with the interest received upon maturity.
Documentation to support this claim may be required, and the tax returns filed annually will serve as the appropriate documents.
As per the provisions of Section 194A of the Income Tax Act, no tax deduction is required on the interest income upon maturity of KVP. If taxes have been paid in the form of self-assessment tax or advance tax, there will be no tax liability upon maturity.
As for the Small Savings Scheme, the interest rates for Kisan Vikas Patra are revised every quarter. As of June 30, 2022, there have been no changes in the interest rates for Kisan Vikas Patra. Currently, it offers an annual interest rate of 6.9 percent.
The minimum investment amount for this scheme is Rs. 1,000, while there is no maximum investment limit. Many individuals are taking full advantage of this scheme to double their investments.
In Kisan Vikas Patra, your invested amount will double in 124 months, which is equivalent to 10 years and 4 months.
Understanding the tax implications and ensuring compliance with the Income Tax Act will help investors make informed decisions regarding their Kisan Vikas Patra investments.
It is advisable to consult with a tax professional or financial advisor for personalized guidance based on your specific circumstances.