I have deposited Rs. 15 lakh in a post office under the Senior Citizens’ Deposit Scheme and I have nominated three of my children to receive the deposited amount on my death indicating the amounts for each of them. All these three children are income tax assessees. I would be grateful if I am advised on the following two points: (i) Whether the nominees concerned have to pay income tax on the moneys received by them. (ii) If yes, whether the payments will be exempted for levy of income tax by including them in the Will of the depositor (senior citizen) indicating inter alia that such payments should be treated as gifts.
Senior Citizens’ Deposit Scheme is not a tax-oriented investment. It was meant for securing a fairer rate of interest for senior citizens at 9 per cent, when the prevailing rate for banks deposits and other safe investments was less.
Deduction under Sec. 80C is available only to the extent of Rs. 1 lakh, which is the overall ceiling for deductions under Sec. 80C. The excess over the ceiling of Rs. 1 lakh will not qualify for deduction under Sec. 80C. Irrespective of the benefit of Sec. 80C to this limited extent, the interest from such deposit is taxable, but not the principal amount when it is returned. Even the amount for which deduction is available under Sec. 80C is not taxable, when the amount is received back on maturity.
It is only deduction availed under annuity schemes covered by Sec. 80CCC that the investment is allowed as a deduction but the return including the principal amount becomes taxable. As for the query regarding taxability of the nominees, where the legal heirs are entitled to the same in their own right, the principal amount received would not be taxable, since it would not have been taxable if the depositor had received it during his life time. Interest, if any, which had accrued during his life time would form part of the estate of the deceased liable in the hands of legal heir/s as representative/s of the deceased. Even interest prior to his death will not form part of their income