Only Interest Earned On RDs Taxable, Not Principal

I have opened a monthly post office recurring deposit (RD) account for Rs 2500. The post office will pay me Rs. 1,90,500 lakh with interest on maturity. Will the whole amount of Rs. 1,90,500 received on maturity be taxable?

The entire maturity amount of Rs. 1,90,500 will not be taxable in your hand. What will be taxable is the interest received, i.e., the difference between the money deposited by you as reduced from Rs. 1,90,500/- at the time of receipt of such maturity proceeds in case you have not offered the accrued interest on such RD for tax each year.  

Please note you have the option to offer interest accrued in each of the financial years for tax. Please request your post office to give you a certificate of interest accrued at the end of each financial year after the end of the year. Offering interest income on an accrual basis will ensure that your income does not come under a higher tax slab all of a sudden during the year of maturity.

Our investments in equity shares are held in a joint demat account with my wife. We propose to equally gift our holding from our existing demat account to my son and daughter. Does the off-market transfer from the demat account trigger any liability for capital gains tax on notional gain?

According to the prevailing tax law, a gift of a capital asset would not qualify as a transfer of the capital asset. Since the transfer of shares from your demat account is not a transaction of transfer under income tax laws, no capital gains arise on such gift transactions. As per Section 56(2), if any property is received as a gift from a relative (including parents), then the same would not be taxed in the hands of the recipient. Accordingly, shares you and your wife gifted to your children would not be taxed in their children's hands. You should give a written confirmation or deed to your children, confirming the details of shares gifted by you to your children, to be able to substantiate the nature of the transaction in case of any tax scrutiny that may happen in future.

When the employer deducts tax from payments made to its employee? My daughter gets a fixed salary of Rs. 20,000/-and the employer deducts 10%. Is it correct?

Tax on salary is not deducted at a fixed percentage of the money being paid every month like in the case of interest, brokerage, fee, etc. The amount of tax to be deducted every month from salary is determined based on the total taxable wage expected to be earned by the employee during the financial year after available exemptions and deductions. Based on the tax liability calculated for the whole year, the employer must deduct tax at the average monthly rate. In practice, the amount to be deducted every month is calculated by dividing the total tax payable by the number of months in which tax is deducted. If there is a revision in the salary during the year, the amount of tax to be deducted may change.  

From your query, it seems your daughter is treated as a consultant by the company, and payment to her is treated as professional charges; therefore, the tax is deducted at a fixed rate of 10%. She is not treated as an employee by the company even if she is working full time. If she is treated as an employee, then the employer is liable to deduct the professional tax and employee provident fund contribution from the salary. Please get this confirmation from the employer of your daughter.

The author is a tax and investment expert

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