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I know that the limit for the Public Provident Fund is Rs 70,000 per financial year.
However, I went ahead and invested Rs 90,000 in the last financial year.
I am sure the extra Rs 20,000 will not be eligible for a deduction under Section 80C.
What I want to know is if it will still earn interest?
- S Sriram
There are a number of issues here.
Limit
You are right when you say that the PPF investment limit is Rs 70,000 per financial year.
Deposit higher than Rs 70,000
In our opinion, since the maximum amount that could be invested under the PPF rules is currently at Rs 70,000, the bank/ PPF accepting authority cannot accept deposits in excess of that amount.
Interest on amount greater than Rs 70,000
Like we mentioned earlier, the bank should not accept amounts higher than Rs 70,000. Bit, if the bank has accepted the contribution in the first place, then, in our opinion, interest would have to be given.
Deduction on amounts higher than Rs 70,000
Under Section 80C of the Income Tax Act, there is no ceiling as to PPF investment within Rs 1,00,000 eligibility.
I invested Rs 30,000 in National Savings Certificate in the year 2000. It matured in March 2006.
How much tax do I have to pay on the interest gained?
The total maturity value is Rs 57,100.
- Shiraz
There are five heads of income.
1. Salary
2. Income from house property
3. Profits / gains from business / profession
4. Capital gains
5. Income from other sources
Interest on NSC is taxable under the head "Income from other sources".
Till financial year 2004-2005, an individual could avail of a deduction under Section 80L of the Income Tax Act. This limit was Rs 12,000 of interest income received/ accrued to him during the financial year.
This deduction has been done away with from financial year 2005-2006. Now, all interest income is taxable at the respective slab rate of the individual.
Generally, it is advisable to declare accrued interest on NSC on a yearly basis. So, over the period of six years, you could have declared the interest income for each year. In such a case, it does not amount to a huge sum.
In your case, if you have never declared the interest on accrual basis, then the entire interest (difference between the amount deposited and the maturity value) would be taxable now on receipt at your current applicable tax rate.
To see the other queries answered by our tax expert, read Lost your PAN or Form 16?
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