ITR Filing: How to report NSC interest if AIS shows unpaid income

How to file NSC interest in ITR?

Even safe small savings schemes like NSC (National Savings Certificates) can cause confusion when it comes to taxation. A retired government pensioner wrote to us at Ask Wallet-Wise about an issue with NSC interest being reflected in AIS.

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I am a retired central government pensioner. I had invested in NSC to claim tax rebate. Till last year the interest received was shown as income from other sources in the year in which the NSC matured. But this year the accrued interest for the year has been captured in AIS (Annual Information Statement) as income even though the interest has not actually been credited into my savings bank account. Due to this I have to pay excess income tax. Kindly advise me how to rectify this. Can corrections be made in AIS?

Expert Advice: Certain institutions are required to report certain financial transactions under Section 285BA to the income tax department. Such transactions include transaction of purchase and sale of shares and mutual funds, credit card payments over certain amount, registration of immovable property over certain value, payment of dividends, interest etc.

Under this requirement the post offices are required to report interest paid/credited on NSC to the income tax department. I feel the reporting practices of post offices are not uniform across all the post offices. In some cases, the accrued interest is reported whereas under certain cases only the interest paid at the time of maturity of the NSC are reported. Based on the transactions reported by various institution, the same are collated based on PAN number and are made available as AIS to the taxpayers for ensuring proper disclosure of all the income.

Please note in respect of income under the head “Profits and Gains or business or profession” and income from other sources the taxpayers have option to report their income from a particular source on accrual basis or receipt basis. Since interest on NSC is taxed under the head “Income from other sources” one can either offer interest on accrual basis every year or the same can be reported on receipt basis or say cash basis in the year of maturity when the proceeds of the NSC get credited in the bank account. The option once exercised has to be followed consistently year after year.

Since you have been reporting the interest income from NSC on receipt basis, you have to follow the same in future also. As far as reporting of yearly interest by post office in the AIS  is concerned, you need not worry. In case you receive any communication from the income tax department for this discrepancy, you can respond with the fact that you have been following cash basis for reporting of interest income.

Coming to your question whether correction can be made in the AIS, yes it can be made provided there is some factual error as regards amount or any other matter. But in your case it is not a factual error and the difference can be explained. File your ITR by offering the interest income on NSC in the year of its maturity as done in the past.

Investments made in NSC qualifies for deduction under Section 80 C along with other eligible items upto Rs 1.50 lakh every year provided you opt the old tax regime. Moreover, interest accrued on NSC in all the years except the year of maturity can be claimed as deduction under Section 80C. So it is advisable to follow accrual basis of accounting for interest on NSC which will make your interest on NSC tax free for all years except year of maturity.

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