Tag: income tax query

Tax Query: Do you pay tax on proceeds from surrendered insurance policy?

Personal Finance

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I took a single premium insurance policy, paying a premium of one lakh rupees on April 4, 2012. The policy, which matures next year in April 2022, gives an insurance coverage (sum assured) of ₹109,450. Due to medical exigencies, I intend to surrender this policy prematurely, and I will get an amount of around ₹235,000. Am I required to pay tax on the excess amount of ₹135,000? The rule regarding insurance coverage being at least 10 times the premium paid, came into vogue only in September 2012, and hence in my view, is not applicable to this policy. What’s your view on this? The insurance company is likely to deduct 5 per cent as TDS. Will the situation regarding tax, change if I allow the policy to run its course till next year?

A.R. Ramanarayanan

Maturity proceeds arising from insurance policies that are issued on or after April 1, 2012 are exempt from taxation provided premium paid does not exceed 10 per cent of the sum assured. In your case considering the fact that premium paid is more than 10 per cent of the sum assured, the maturity amount received shall be taxable in your hands. The insurance company would deduct 5 per cent taxes on the net proceeds i.e. on ₹135,000 as per section 194DA of the Act. Even if you allow the policy to run till next year, the maturity proceeds would be taxable in your hands as the same do not satisfy the conditions laid out under section 10(10D) of the Act as clarified above.

The writer is Partner, Deloitte India

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Tax Query: For income tax filing what is the reference document for forex conversion to rupee?

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On conversion from foreign currency to Indian rupee for income tax filing purposes, what is the reference document recognised by income tax rules? What is the date for applying the exchange rate?

Kindly answer as applicable to include rupee exchange rates for currencies outside the standard five – (US, UK, Canada, Japan and Australia) for example, BRICS countries.

Srishyla Melkote V

Rule 115 of the Income-tax Rules, 1962 provides for the rate of exchange that should be used for conversion of any foreign income accruing/ arising to an assessee.

As per the said rules, Telegraphic Transfer Buying Rate (‘TTBR’) of the relevant currency as adopted by State Bank of India on the specified date. For this purpose, ‘specified date’ means as below:

The SBI TTBR is available on a daily basis on the official site of the bank. However, please note that for historical rates, the same needs to be obtained from SBI by making a special application.

The writer is a practising chartered accountant

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Tax Query: TDS on capital gains for NRI investing in MFs with power of attorney

Personal Finance

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My son Prabaharan is an NRI. I am investing in mutual funds for him basis a power of attorney. The payment is made from the joint savings account of Prabaharan and myself (Indian resident account). In the circumstances stated above, is it necessary to deduct TDS from the capital gains?

K. Ramachandran

As per the provisions of section 196A of the Income-tax Act, 1961 (‘Act’), every person responsible for paying to Non-Resident any income in respect of prescribed mutual funds, shall deduct taxes at source (‘TDS’) at 20 per cent on such income, at the time of credit or payment whichever is earlier. I understand that your son is the legal owner of the mutual funds and qualifies to be a non-resident in India and is receiving income in the nature of Capital Gains on transfer of mutual funds. As per the above-mentioned provisions, TDS would be deducted by the payer at 20 per cent of such Capital Gains at the time of credit or payment, whichever is earlier. Please note that for your query, I have not analysed and commented on any exchange control regulations / legal aspect.

My father (aged 61 years) retired in March 2020 and invested ₹15 lakh in senior citizen savings scheme in post office in May 2020. Is the amount invested eligible for 80C for all the five years, or it is only for the first year? Is the amount enough to fulfil the entire ₹1.5 lakh limit under 80C for all the 5 years?

Gokulanathan K

As per the provisions of Section 80C of the Income-tax Act, 1961 (‘Act’), the deduction is available in respect of any sum paid or deposited (as specified in the said section) during the concerned Financial Year (‘FY’), subject to a maximum eligible deduction of ₹150,000. Accordingly, for the amount contributed in May 2020, the deduction available to be claimed in your father’s hands would be for FY 2020-21, which shall be restricted to ₹150,000 (i.e. only for the year in which the amount is deposited in an account under Senior Citizen Saving Scheme). The amount invested during FY 2020-21 would not be eligible for deductions in future years.

The writer is a practising chartered accountant

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Tax Query: Treatment of ‘bullock rent’ income

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I got retired from a PSU in May 2020. My earnings for FY2020-21 comprise regular salary for April 2020 and May 2020, retirement benefits (including leave encashment), regular pension from June 2020, interest income on fixed deposits, dividend income from shares and income from house property (two houses; availed housing loans and paying EMIs). Can you please advise which income tax form should I submit for AY 2021-22?

Bhaskaran S

Based on the details provided, your income includes salary, house property (2 houses with housing loan), and income from other sources. Hence, you need to file your return for FY 2020-21 using form ITR 2.

We rent our bullock for tilling the land. Although there is no service tax for the activity, could the income from be treated as business income / non agricultural income? What could be the form to be submitted before June?

Chandrasekaran

If the principal source of income is renting of bullock used for tilling the land, the same qualifies to be business income and accordingly, ‘ITR-3’ is the tax return form that needs to be used for filing the return of income.

The writer is Partner, Deloitte India

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