Declaration of NSC interest & EPF withdrawal amount in ITR

Query 1: NSC Interest Declaration

1. Requirement of yearly declaration

• Tax rule: NSC interest accrues annually and is deemed reinvested (except in the final year).

• Each year’s accrued interest:

  • Should ideally be declared under “Income from Other Sources”, and

  • Claimed as deduction under Section 80C (since it’s reinvested).

• If your 80C limit was already fully utilised, you couldn’t claim deduction, but the interest still should have been reported as taxable income in earlier ITRs.

So yes, technically you were required to declare the yearly accrued interest in each earlier ITR.

2. Final year’s interest

• In the final year (maturity year), the accrued interest is not reinvested, hence it is only taxable.

• Since your NSC purchased in April 2019 matured in April 2025, the last year’s interest relates to FY 2024-25 (AY 2025-26).
  You did the correct thing by declaring it in AY 2025-26.

3. Remedy

• Since earlier years’ accrued interest was not declared, the technical position is that there is a mismatch with law.

• Practical remedy:

  • You can leave it as is, because after maturity, the entire interest has anyway been offered to tax (in AY 2025-26 through AIS reporting).

  • If tax department raises a query, you can explain that you taxed the entire maturity interest in the final year, which ensures no revenue loss to the government.

  • No rectification/revised returns are possible now.

  • Hence, best approach is to keep supporting documents ready and respond if a notice comes.

Query 2: EPF Withdrawal Declaration

1. Taxability

• Since you had 10 years of continuous service, your EPF withdrawal in Jan 2024 is fully exempt under Section 10(12).

• However, disclosure in ITR is still advisable — in the “Exempt Income” schedule.

2. Was it required in AY 2024-25?

Yes.

• Even though exempt, you should have reported it under “Exempt Income – Others” in AY 2024-25.

• Since you didn’t, your ITR shows lower exempt income, which might create a mismatch with AIS (especially because of the linked credit card repayments flagged as high-value).

3. Impact of not reporting

• The tax department may question source of funds for your high-value repayments (seen in AIS).

4. Remedy

• For AY 2024-25, the ITR revision window has closed.

• Best option:

  • Keep withdrawal proof ready (Form 10C/19 acknowledgement, EPFO passbook, bank credit entry).

  • If CPC/AO asks, explain that the repayments were funded from your exempt EPF withdrawal.

  • No additional tax liability will arise.

• NSC Interest – Should ideally be declared each year, but declaring full final-year interest in AY 2025–26 (as you did) is acceptable. No revenue loss, keep NSC proof ready.

• EPF Withdrawal – Fully exempt after 10 years service, but should have been shown in AY 2024–25 under “Exempt Income.” Keep EPF withdrawal documents to justify source of funds if asked.

• Gratuity (₹7.45L) – Fully exempt u/s 10(10), but should also have been shown in AY 2024–25 under “Exempt Income.” Keep gratuity letter and bank proof ready.

Query 1: NSC Interest

1. Treatment of NSC Interest Each Year

• Accrual Basis: Interest on NSC is deemed to accrue annually.

• Taxability:

  • For years 1–4: the accrued interest is taxable under “Income from Other Sources” but it is simultaneously eligible for Section 80C deduction (since reinvested).

  • For the final year: the interest is taxable but not eligible for 80C deduction, as it is not reinvested (paid out to you).

2. Your Case

• You already exhausted your 80C limit, so declaring accrued interest yearly wouldn’t have given you any additional tax benefit.

• Technically: Yes, you were required to declare the yearly accrued interest in ITRs of AY 2020-21 to AY 2024-25.

• Practically: Many taxpayers club it in the maturity year. The Department generally accepts this if reported once in totality.

3. The Final Year Interest

• Since your NSC matured in FY 2024-25 (13th April 2024), the maturity interest belongs to AY 2025-26.

• So you did the right thing by showing it in AY 2025-26. Declaring it in AY 2024-25 would have been wrong.

4. Remedy (if any)

• Since you missed accrued interest in earlier years, the “pure technical” fix is to file updated ITRs (ITR-U) for those years.

• But in practice: if your total maturity interest has been disclosed in AY 2025-26 and AIS matches, there is low risk of mismatch.

• Unless the amount is large and you want a clean record, filing ITR-U for each missed year is not mandatory, though technically correct.

Query 2: EPF Withdrawal

1. Taxability of EPF Withdrawal

• Since you completed 10 years of continuous service, your withdrawal is fully exempt under Section 10(12) read with Rule 8 of Part A of Fourth Schedule.

• Therefore, no tax liability arises.

2. Was Disclosure Required?

• Ideally, yes—you should have reported it as Exempt Income in Schedule EI of your ITR for AY 2024-25.

• Not reporting exempt income doesn’t create tax liability, but it may create explanatory gaps if AIS/TIS shows related transactions (like large credit card repayments).

3. Credit Card Repayment Link

• You repaid loans using EPF funds. AIS shows high-value repayments, but doesn’t directly show EPF withdrawal credit (since exempt).

• If the department cross-questions, your bank statement + PF withdrawal credit + repayment trail is enough to justify.

• The lack of disclosure in ITR is not fatal, but it’s a red flag for mismatch queries.

4. Remedy

• You can file an updated ITR (ITR-U) for AY 2024-25 showing EPF withdrawal under Exempt Income (Schedule EI).

• This strengthens your position if CPC/AO asks about high-value transactions.

• If the amount is very large and visible in AIS, I strongly recommend filing ITR-U (only to “report” it; no tax impact).

1. Taxability of Gratuity

• Gratuity received by an employee on retirement/termination after 5 years of continuous service is exempt up to the prescribed limits under Section 10(10).

• For employees covered under the Payment of Gratuity Act, the exemption is least of:

  1. Actual gratuity received

  2. ₹20,00,000 (statutory limit, as amended)

  3. 15 days’ salary for each completed year of service (last drawn salary basis).

• Since you completed 10 years of service and received ₹7,45,000, it is fully exempt (well below the ₹20 lakh cap).

2. Reporting Requirement

• Even though exempt, it must be reported in the ITR under Schedule EI (Exempt Income).

• Non-reporting doesn’t create tax liability, but it can:

  • Cause AIS/TIS mismatches (if your employer reported gratuity paid in Form 16 / AIS).

  • Lead to clarification notices, since CPC/AO will see a credit in your bank account without corresponding reporting.

3. Remedy in Your Case

• Since the gratuity was received in August 2023 (FY 2023–24, AY 2024–25), you should have disclosed it in your ITR for AY 2024–25.

• As you missed reporting:

  • You can now file an updated ITR (ITR-U) for AY 2024–25, showing ₹7,45,000 under Schedule EI → Exempt Income (Section 10(10)).

  • No additional tax is payable, but it ensures your ITR reconciles with AIS/Form 16.

4. Practical Angle

• CPC usually auto-reconciles salary + gratuity as reported by employer. If gratuity is in Form 16 / AIS and missing in your ITR, CPC may send a mismatch communication.

• Filing ITR-U preemptively is cleaner—it closes the gap and avoids unnecessary notices.

Summary for You:

• Your gratuity of ₹7,45,000 is fully exempt.

• But it should have been disclosed in AY 2024–25 ITR.

• Best course: file an ITR-U for AY 2024–25 reporting gratuity + EPF withdrawal (both exempt) in Schedule EI. This will reconcile AIS and protect you from queries, especially since you also had high-value credit card repayments.