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Is interest forgone for foreclosure deductible?

A reader had made a deposit of Rs. 50,000 in a company on March 1, 2005 and had drawn Rs. 2,500 during financial year 2004-05 till August 31, 2005, when he had to foreclose the deposit due to urgent family necessity. The amount of Rs. 1,250 was deducted from his refund as amount payable on foreclosure. His doubt is whether he had to report his interest income as Rs. 2,500 by claiming interest loss of Rs. 1,250. His doubt is because the company has given certificate showing Rs. 2,500 as interest paid.

The interest, which the assessee has received during the year on the deposit, is only the net amount being Rs. 1,250, because it is what the reader has received as interest on his deposit, which alone can be taxed as interest income. Since tax was deducted at source on the larger amount, the certificate of deduction may show Rs. 2,500. But similar certification or other documentation showing that Rs. 1,250 was deducted from the amount repaid is also an evidence. If the company is prepared to make this clear in a single certificate, it should be easier to explain the matter to the assessing officer. Even otherwise, the reader's offer of income at Rs. 1,250 should be accepted. The reader is entitled to refund of extra tax deducted in his case.

S. RAJARATNAM

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