Q. 1. I pre-closed a Post Office 5-year time deposit (principal: ₹5 lakh) during the third year (June 2021). As the deposit was pre-closed, a sum of about ₹27,000 was deducted from principal as penalty. Can this ₹27,000 be shown as a loss when filing I-T for FY22? Also, do I have to show the principal as my income during I-T filing for FY22? If so, under which section should this shown? Please advise.
2. I purchased an individual health insurance policy for ₹10 lakh for the period March 2020-March 2021. As the premium was paid in March 2020, the 80D benefit was only applicable for FY20 and not FY21. This has been the case every year when I renew my policy. Could you please advise what should be done to make the deduction benefit come under the respective financial year instead of the previous year?
3. I opened a ULIP in 2018 and have paid four premiums till date. If I discontinue my final- year premium and receive the leftover amount in the sixth year, do I have to consider it as income and show during I-T filing? Please advise.
4. I am paying premium for an endowment policy for the past 11 years. If I pre-close/surrender this policy and receive the final amount, what are the tax implications for me? Please advise.
Sethuraman
A. 1) Penalty on pre-closure of time deposits cannot be set off against any other income. ₹4.73 lakh is not an income and it is not required to be disclosed in your ITR. Only the interest earned/accrued on the deposit is taxable under the head “Income from Other Sources”.
2) Deduction of health insurance premium paid can be availed only in that year when the payment is made wherein such payment is made in respect to keep the health insurance in force.
3&4) As per Section 10(10D) of the Income Tax Act, 1961, any sum received under a life insurance policy, including bonus is exempt. You are to note that this exemption is available only if the premium paid is lesser than 10% of the sum assured if the policy is taken on or after April 1, 2012 and in the case of policies dated between April 1, 2003 and March 31, 2012, the policy paid amount is to be lesser than 20% of the sum assured. Insurance Companies are required to deduct TDS only if the amount so paid is not covered under Section 10(10D) of the Income Tax Act, 1961 and when such amount exceeds ₹1,00,000.
Q. I am working in the private sector and my wife is a homemaker. I have made mutual fund investments and occasionally buy/sell shares (no intraday trading) in her name. She does not have any other income apart from the capital gains that accrue through the sale of mutual funds and shares. Should I pay the 15% short-term capital gains tax and 10% long term capital gains tax (greater than ₹1 lakh) or could I show it as “other sources of income” whereby I can pay the tax as per the income tax slab. Since my wife does not have any other income, tax would be lesser or nil if I pay by income tax slab. Could you please advise on the best way to pay the tax according to the law?
Prasanna
A. It is assumed that the funds used to invest in equity shares and mutual funds belong to your wife and is not gifted by you. In such a case, sale of listed equity shares and equity oriented mutual funds are taxed only under ‘Capital Gains’ and cannot disclosed under ‘Income from Other Sources’. As there is no other income, the capital gains can be reduced to the extent of unutilised basic exemption limit. Further, if the total capital gains do not exceed the basic exemption limit, there is no incidence of tax.
In case the equity shares and mutual funds are invested through funds transferred by you to your wife, as a gift (without adequate consideration), then the profits/incomes accruing from such equity shares and mutual funds are to be clubbed in your hands and the same will be taxable at the respective rates in your hands.
Q. I am an individual income taxpayer. I have opened a post office SS Account (Sukanya scheme) in my minor daughter’s name. I am the natural guardian and it is mentioned in the pass book. This is a tax-free account. Do I have to show the yearly interest that accrues in that account in my yearly tax returns? And every year, will I have to show the total balance of that account in my income tax returns?
Natarajan
A. Interest accrued on Sukanya Samriddhi Yojana (SSY) is exempt. You can disclose the same in exempted income of the minor child in your respective ITR under exempt income of minors. In our opinion, deposit amount is not required to be disclosed in your respective ITR.
(N. Sree Kanth is partner, GSS Associates, Chartered Accountants, Chennai)
