KVP Maturity Shock: Why AIS Shows Huge Interest and Why You May Not Owe Extra Tax
[Query 1]
I had purchased Kisan Vikas Patra for Rs. 15 lacs in the year 2015. These KVP matured in 2024 after 8 year 4 months. I was offering KVP interest each year in my income tax return on an accrual basis whereas AIS is showing a whole interest amount of 15 lakh in the financial year 2024-25. Is it necessary to take interest in KVP on receipt basis? I responded on the feedback tab of AIS as information is not fully correct but a source at post office, Chennai rejected my feedback. Should I use option income that belongs to another year and in this option show interest amount which I offered every year of KVP tenure? Please guide how I should convey to AIS that income of interest has been shown over the tenure of KVP in each year on an accrual basis. Please Guide. [N.R. Gupta – exprep24@gmail.com]
Opinion:
This is a classic case where tax law, accounting practice, and AIS technology are not fully in sync – causing avoidable anxiety to honest taxpayers at the time of maturity. Let us first settle the legal position.
1.Receipt basis Vs Accrual Basis – both are permissible:
Interest on Kisan Vikas Patra is taxable under the head “Income from Other Sources.” The law does not mandate that KVP interest must be taxed only on receipt. A taxpayer has two legally acceptable options:
• Offer interest every year on accrual basis, or
• Offer the entire interest on maturity/receipt basis.
Once a method is consistently followed and disclosed in returns, it cannot be faulted merely because the investment matures later.
Courts have consistently held that once a method of accounting is regularly followed and accepted, the Department cannot force a change merely for administrative convenience.
In your case, you have consistently offered KVP interest year after year during the entire tenure. This is a perfectly valid and recognized practice.
2.Why AIS shows entire interest in one year:
AIS reflects information as reported by the reporting entity, i.e., the Post Office. Since the Post Office reports interest only at the time of maturity, AIS mechanically captures the entire cumulative interest in FY 2024–25. AIS doesn’t automatically adjust for accrual-based taxation already done by the taxpayer in earlier years.
Important point:AIS is an information statement, not the final authority on taxability.
3.Was your AIS feedback correct?
Yes, conceptually your feedback is correct. However, practically, Post Offices usually reject “information is incorrect” feedback because from their perspective, they have correctly reported what accrued till maturity. This rejection does not mean you are wrong in law.
4.Correct and safe way to respond in AIS:
The most appropriate and technically correct option is: “Income relates to other year(s)”. Under this option:
• Mention that KVP interest has been offered to tax annually on accrual basis;
• Specify that the interest shown in AIS for FY 2024–25 pertains to earlier assessment years already taxed.
You are not required to re-offer the same interest again in FY 2024–25.
5.What to do in the Income-tax Return:
While filing your return:
• Do not include the entire ₹15 lakh interest again if it has already been taxed.
• Keep copies of past ITRs showing year-wise interest disclosure.
• If any clarification is later sought, these documents are sufficient to explain the position.
6.Key takeaway for readers:
AIS mismatch does not mean additional tax liability.
Taxability depends on law and consistency of accounting, not merely on how AIS auto-populates data. If you have already paid tax honestly over the years, the law does not expect you to pay it again-just because technology wakes up at maturity.
In taxation, consistency is king-and double taxation is never the crown.
[Query 2]
The honest taxpayer, the super senior citizen’s tax rate of 20% immediately after 5 lakhs is very harsh in old regime & many super seniors have now opted for new regime but Tax deduction for health insurance will be a sort of solace to them because they had tax exemptions for health insurance in old regime many seniors have committed to that but now paying 50,000 or more for that is felt as a curse because many seniors are paying the premium since long which is not at all used because of good health, but they can’t stop it now, tax exemption for health insurance will be of great help for seniors if it is allowed in NTR. Please suggest what can be done? [n_premkumar@hotmail.com]
Opinion:
The concern raised reflects the genuine anxiety of many super senior citizens. Under the Old Tax Regime (OTR), income beyond ₹5 lakh straightaway entering the 20% slab does feel harsh for retirees dependent on pensions, interest, or fixed savings. This has pushed many seniors—often unwillingly—towards the New Tax Regime (NTR), even after giving up long-cherished deductions. At the same time, the Government deserves appreciation for the enhanced rebate under the NTR, which ensures that individuals with income up to ₹12 lakh effectively pay zero tax. This has provided meaningful relief to low and middle-income taxpayers and reflects a clear policy intent.
Health insurance, however, stands on a different footing for senior citizens. Mediclaim is not a tax-saving tool; it is a necessity in old age. Many seniors continue paying substantial premiums year after year, often without claims, yet cannot afford to discontinue coverage when age makes them most vulnerable.
The NTR is built on a “lower rate, fewer exemptions” philosophy, which brings simplicity and clarity. However, a limited and targeted relief for senior citizens’ health insurance – even within this framework -would not undermine the structure but would offer much-needed reassurance.
While India remains the youngest country in the world today, longer life expectancy means today’s young taxpayers are tomorrow’s seniors. Designing a tax system that acknowledges this reality is not generosity – it is sensible foresight.
For now, senior citizens must choose between deductions under the OTR and lower slabs under the NTR purely based on arithmetic. Yet this is one area where a touch of empathy can add real value. After all, good health should feel like a blessing – not a tax penalty for having lived long enough to enjoy it.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
