CS Executive · Tax Laws and Practice · Deductions
Meera deposited ₹2,00,000 in a five-year Post Office Time Deposit and claimed a deduction under Schedule XV. She withdraws the amount after three years, before the five years expire (she is alive). What is the tax treatment of the withdrawal?
The amount withdrawn is deemed to be her income in the tax year of withdrawal and is taxed that year. Interest already taxed in earlier years is excluded from the amount. Both principal and untaxed interest are therefore taxable because deduction was earlier allowed.
- AThe amount withdrawn is deemed to be her income of the year of withdrawal, excluding interest already taxed in earlier yearsCorrect
- BThe earlier deductions are reversed in the year of the original deposit by reopening that year
- CThe withdrawal is fully exempt because the deposit was made by her
- DOnly the interest portion is taxed and the principal is exempt
Explanation
Under paragraph 5 of Schedule XV, withdrawal before five years deems the amount withdrawn to be income of the year of withdrawal. Interest already included in total income of earlier years is excluded from this amount. Option 4 is wrong because the principal is also taxed since a deduction was allowed for it.
Did you get it right without looking?
One question tells you little. A timed set on Deductions shows your real accuracy, how long you take and where you lose marks.
More Deductions questions
- Under the Income-tax Act, 2025 (applicable from the June 2027 session), which statement correctly describes the cap placed on the aggregate …
- Ananya Developers Ltd has an eligible business whose profits are ₹60 lakh. It is claimed and allowed as a deduction under Part C of the Chap…
- Under the Income-tax Act, 2025, an eligible undertaking of Sharma Infra Ltd transfers goods to another business of the same assessee at a re…
- A firm accrued interest of Rs. 2 lakh in the tax year on a term loan from a scheduled bank, as per the loan agreement, but did not pay it. U…
- Under Section 122(4) of the Income-tax Act, 2025, where profits of an undertaking are claimed and allowed as a deduction under Part C for a …
- Sunrise Traders follows the mercantile system. For tax year 2026-27 it incurred interest of Rs. 2,00,000 on a loan from a scheduled bank, on…