Section 194EE of ITA, 1961 : Section 194Ee: Payments In Respect Of Deposits Under National Savings Scheme, Etc

Explanation using Example

Imagine Mr. Sharma has invested in the National Savings Certificate (NSC), and at maturity, he is entitled to receive an amount of ₹50,000 as the investment payout. The institution responsible for paying this amount is required by Section 194EE of the Income-tax Act, 1961, to deduct income tax at the rate of 10% from the payout, which would be ₹5,000 in this case.

However, if the total amount to be paid to Mr. Sharma during the financial year was only ₹2,000, the institution would not deduct any tax since the payout is below the threshold of ₹2,500.

If, unfortunately, Mr. Sharma passes away and the NSC payout is to be made to his heirs, then as per the further provision, no tax should be deducted by the institution and the entire amount should be paid to the heirs without any tax deduction.