I had purchased an NSC in 2020 and and paid tax every year for the interest on accrual basis. Since last year, it seems post offices are providing data to AIS on receipt basis, that is, whole amount of interest on maturity. What happens to the taxes I have paid in previous years on accrual basis? How do I adjust them?

Ans: Interest on NSC can be offered to tax on receipt basis or on accrual basis. In case the interest was already offered for tax on accrual basis (year on year basis), interest for 4 years will not be taxed again at maturity on receipt basis.

Ans: You're right! The tax treatment of NSC interest can be confusing. Here's what you need to know:

Good news: The taxes you've paid on the accrued interest in previous years are valid. You don't need to adjust them.

Why?

The Income Tax department in India treats interest earned on NSCs on an accrual basis, even though the interest is paid out at maturity. This means you were correct to pay taxes on the accrued interest every year.

What about the data mismatch with AIS?

The post office might now be reporting the entire interest on maturity to the Annual Information Statement (AIS). This can create a discrepancy.

How to handle it?

• You don't need to file any corrections for previous years.
• When filing your current year's return, consider the following:

1. If you consistently claimed the accrued interest as income in previous years, only report the interest for the final year (maturity year) in your current return. This avoids double taxation.
2. You can file feedback in the AIS portal mentioning that the interest for the previous years was already offered for tax purposes. This helps in clarifying the situation.

Additional tips:

• It's advisable to maintain records of your previous tax returns where you declared the accrued interest.
• If you have any concerns, consult a tax advisor for personalized guidance specific to your situation.

This is a common issue faced by many NSC holders. By following these steps, you can ensure your tax filing remains accurate.

Ans: Interest income on NSC is taxable as Income from other sources. Taxpayer can offer all the income from other sources on receipt basis and once said method is adopted, it should be followed in future year also.

However, practically it will be difficult to reconcile with AIS and 26AS every year.

Ans: You can show income from other sources on cash system accounting. However, you have to all income under other sources as per cash system and once stand is taken, you have to offer income from other sources as per cash system in future also.