Exemption of interest on savings certificates under clause (15)(ii) - Interest on holdings in the names of wife and minor children whether eligible for exemption - Exemption in the event of death of one of the joint holders - Income Tax - 102/1973

Circular 102 Dated 3/2/1973 Exemption of interest on savings certificates under clause (15)(ii) - Interest on holdings in the names of wife and minor children whether eligible for exemption - Exemption in the event of death of one of the joint holders clarification 1 1. Reference is invited to Circular No. 10 [XLVII-9]-D of 1958, dated 20-5-1958 and Circular No. 102 [F. No. 167/56/71-IT(A-I)], dated 3 -2-1973 [Clarifications 2 and 3 on p. 170 and p. 171, respectively]. 2. It has been brought to the notice of the Board by the National Savings Commissioner that some Income-tax Officers are not giving exemption from income-tax on tax-free savings certificates and accounts held in the names of the spouse and minor children of the assessee. 3. Under the rules governing the issue of the various savings certificates and accounts, deposits may be made by an adult individual in his own name or by two adults jointly or by a guardian on behalf of a minor. Various limits have been laid down for these accounts and certificates for individuals and for two persons jointly. Where any assessee makes an investment in the name of his wife or minor child, the income derived from such investments is included in the total income of the assessee under the relevant provisions of the Income-tax Act, 1961. 4. The Board had decided that where investments are made by an assessee in the names of his wife and minor children, the exemption from income-tax should be allowed and in respect of the investments made in the name of his wife or each minor child up to the limit of the maximum amount that may be invested in their names in the tax-free savings certificates. This decision was communicated vide Board's Circular No. 10(XLVII-9)-D of 1958 [F. No. 39(3)IT/57]. Similarly, in Board's Circular No. 102, the Government's decision was communicated that in the case of joint holdings, the interest earned is free of income-tax even when one of the joint holders dies. The limits up to which the investments could be made by an individual and by two persons jointly were given in the Circular No. 102. These limits have since been increased. The new limits are as follows : Limits up to which investments can be made singly Limits up to which investments can be made jointly 1. National Savings Certificates, II III Issues combined Rs. 75,000 Rs. 1,50,000 2. Post Office Savings Bank Account Rs. 25,000 Rs. 50,000 3. 10-Year CTD Accounts (including 15-Year CTD Accounts since discontinued) Rs. 1,20,000 Rs. 2,40,000 4. Public Provident Fund Rs. 20,000 in a year Joint investments not allowed These limits are for the entire period of the accounts standing in the name of the assessee or his minor children and wife. 5. The certificates covered under section 10( 15 )( ii ) which have since been discontinued but interest on which continues to be free of income-tax are as under: 1. 10-Year TSDCs and 10-Year DDCs. 2. PO Cash Certificates. 3. 12-Year National Plan Savings Certificates. 4. 10-Year National Defence Certificates. 5. 10-Year National Plan Certificates. The limits for these certificates are inclusive of limits for National Savings Certificates II and III Issues mentioned above. For example, if a person holds NSCs II and III Issues up to Rs. 35,000 in his own name, Rs. 30,000 in the name of his wife, Rs. 10,000 in the name of his minor son and Rs. 15,000 in the name of his minor daughter, his entire holdings amounting to Rs. 90,000 will be free of income-tax as the holdings in each person's name are within the limits prescribed, and will not be limited to a total of Rs. 75,000. 6. The Board have decided that if in any case involving the application of the above provisions relief had not been given as stated above, suitable remedial measures should be taken to grant such relief. Circular : No. 218 [F. No. 184/5/76-IT(A-I)], dated 30-4-1977. clarification 2 1. The following items of income are exempt from income-tax under clauses (xvii) and (xviia) of section 4(3) of the 1922 Act [corresponding to section 10 (15)(ii) of the 1961 Act] : 1. Interest on the 10-Year Treasury Savings Deposit Certificates or the monthly payments on the 15-Year Annuity Certificates issued by or under the authority of the Central Government for an amount not exceeding the maximum amount which is permitted to be invested therein. 2. Interest on deposits in Post Office Savings Bank, Post Office Cash Certificates, Post Office National Savings Certificates and Post Office National Plan Certificates for amounts not exceeding in each case the maximum amount which is permitted to be deposited or invested therein. Under the rules governing the issue of the 10-Year Treasury Savings Deposit Certificates, deposits may be made by an adult individual in his own name or by two adults jointly or by a guardian on behalf of a minor. The limit laid down for an individual is Rs. 25,000 and for an individual jointly with another is Rs. 50,000. Where an assessee makes investments in the name of his wife or minor child, the income derived from such investments is included in the total income of the assessee under the provisions of section 16(3). If an assessee has invested Rs. 25,000 in the 10-Year Treasury Savings Deposit Certificates in his own name and Rs. 25,000 in the name of his wife or a minor child, it has been the practice of Income-tax Officers to allow the exemption only in respect of the interest derived from the former amount and not in respect of the latter on the ground that the income derived from the investments standing in the name of the wife or minor child is deemed to be the income of the husband and, therefore, the overall limit should be only Rs. 25,000. The Board have now decided that the exemption should be allowed also in respect of the investments made in the name of the wife or each minor child up to the limit of the maximum amount that may be invested in their names in the Treasury Savings Deposit Certificates under the rules. The same decision will apply to the monthly payments on the 15-Year Annuity Certificates as well as interest on deposits in the Post Office Savings Bank, Post Office Cash Certificates, Post Office National Savings Certificates, Post Office National Plan Certificates and Post Office National Plan Savings Certificates. 2. The following table sets out the kinds of investments which are covered by clauses ( xvii ) and (xviia) of section 4(3) and the maximum limits up to which individuals can invest moneys in their names : Nature of investments By one individual in his own names By two individuals in joint name Rs. Rs. 1. Post Office Savings Bank Accounts 15,000 30,000 2. Post Office Cash Certificates (Discontinued from June 15,1947) 10,000 10,000 3. National Savings Certificates (Discontinued from June 1, 1957) 25,000 50,000 4. National Plan Certificates (Discontinued from June 1, 1957) 2,500 5,000 5. National Plan Savings Certificates (Issued from June 1, 1957) 25,000 50,000 6. Treasury Savings Deposit Certificates 25,000 50,000 7. 15-Year Annuity Certificates (Discontinued from January 2, 1958) 28,000 56,000 8. 15-Year Annuity Certificates—2nd Series (Issued from January 2, 1958) 26,600 53,200 NOTE 1 : Prior to June 15, 1947, the Post Office used to issue Post Office Cash Certificates in which an individual could invest up to Rs. 10,000 in his own name or in two joint names. Persons who are still holding these certificates will continue to get exemption up to this limit. NOTE 2 : Prior to June 1, 1957, an individual was allowed to invest (1) Rs. 25,000 in National Savings Certificates, and (2) Rs. 2,500 in National Plan Certificates. These two were discontinued from June 1, 1957 and replaced by National Plan Savings Certificates for which the limit is Rs. 25,000 for an individual. The earlier certificates will continue to get exemption up to the limits of Rs. 25,000 and Rs. 2,500 respectively. It may be noted, however, that the total holding of an individual in one or more of the four types of certificates mentioned at Serial Nos. 2, 3, 4 and 5 above will continue to be Rs. 27,500. Double the above figures will apply in the case of investments in joint names, but no individual holder shall under any circumstances hold certificates exceeding in value Rs. 27,500, taking into account the holding in his own name or holdings held by him jointly with any other holder. For the purpose of calculating the individual holdings when a certificate is held by two persons jointly, one-half of the amount shall be deemed to belong to each. NOTE 3 : Before January 2, 1958, the limit for investment in 15-Year Annuity Certificates by an individual was Rs. 28,000. After January 2, 1958, a second series of certificates with a higher yield was introduced. The limit for the second series is Rs. 26,600 for an individual. The combined limit for both the first and the second series is Rs. 28,000. Double the above figures will apply in the case of investments in joint names, but no holders shall under any circumstances hold certificates of the 1st and 2nd series exceeding in value twenty-eight thousand rupees, taking into account the holding in his own name or holdings held by him jointly with any other holder. For the purpose of calculating the individual holding, when a certificate is held by two persons jointly, one-half of the amount shall be deemed to belong to each. NOTE 4 : No holder of Treasury Savings Deposit Certificates shall under any circumstances hold certificates exceeding twenty-five thousand rupees in value, taking into account the holding in his own name or holdings held by him jointly with any other holder. For the purposes of calculating the individual holding of Treasury Savings Deposit Certificates, when two persons hold them jointly, one-half of the joint holdings shall be deemed to belong to each. 3. The Board have decided that if in any case involving the application of section 16(3), the exemption available under clauses ( xvii ) and ( xviia )of section 4(3) has been restricted in the past, relief should be given by the Commissioners under section 33A(1) by waiving the time limit, if necessary. Circular : No. 10(XLVII-9)-D of 1958, dated 20-5-1958. clarification 3 1. A question has arisen as to whether in the event of death of one of the joint holders of the 12-Year National Plan Savings Certificates, exemption under section 10( 15 )( ii ) would be admissible only in respect of the maximum amount admissible to an individual holder singly or the exemption as available to the joint holders will continue to be available to the surviving joint holder. 2. According to the proviso to section 13 of the Post Office Savings Certificates Rules, 1960, "a holding shall not be considered in excess of the limit prescribed in these rules, if it is due to any of the following reasons, namely : a. inheritance; b. award by the Government for meritorious service; c. survivorship in the case of joint holdings; d. statutory devolution; and e. nomination." 3. It has been decided that under section 10( 15 )( ii ) of the Income-tax Act, 1961, read with the proviso ( c ) to section 13 of the Post Office Savings Certificates Rules, 1960, in the event of death of a joint holder of the certificates, the surviving joint holder would continue to get exemption from tax on the interest received up to the maximum amount permitted to be held in the case of joint holdings. Following are the various investments in Small Savings Certificates and Accounts covered by the provisions of section 10 (15)( ii ) along with the limits of investments singly and jointly by the holders of these certificates/accounts : Nature of investments Limits up to which investments can be made singly Limits up to which investments can be made jointly Rs. Rs. 1. National Savings Certificates II III Issues combined 50,000 1,00,000 2. Post Office Savings Bank Accounts 25,000 50,000 3. Cumulative Time Deposit Accounts 90,000 1,80,000 The old certificates, covered under section 10( 15 )( ii ), are as under : 1. TSDCs and DDCs. 2. PO Cash Certificates. 3. 12-Year National Plan Savings Certificates. 4. 12-Year National Defence Certificates. 5. 10-Year National Plan Certificates. The limits for these certificates are inclusive of the limits for National Savings Certificates II and III Issues. 4. Board's Circular No. 10(XLVII-9)-D, dated 20-5-1958 [Clarification 2], may be treated as modified to the extent specified above. Circular : No. 102 [F. No. 167/56/71-IT(A-I)], dated 3-2-1973.