S.B. A/C INTEREST- FROM BANK – TAXABLE: FROM POST OFFICE – EXEMPT

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S.B. A/C INTEREST- FROM BANK - TAXABLE: FROM POST OFFICE - EXEMPT

saving bank account interest

Query 1]

Sir, I have a question regarding a life insurance policy and others as under: –

  1. I have read that if endowment policy is taken for 5 years & the yearly subscription is more than 20% ( example for Rs.1 Lacs policy, yearly amount is Rs. 21,000/-), in this case, we cannot get section 80C benefit on this. Is this true? If I get section 80C benefit on this, at the time of maturity the bonus and loyalty additions, if any, received are taxable?

  2. If my total savings for all – insurance, HBA, PPF etc is more than Rs. 1 Lacs, then, whether for the amount above Rs. 1 Lacs received at a later date, I have to pay the tax at maturity (on the interest/bonus etc that I get on the additional amount above Rs. 1 Lacs invested)?

  3. Is the SB account interest of 3.50 % per annum (of Nationalised banks) taxable and to be shown in income tax return? Is post office SB account interest of 3.50% per annum tax free?
  4. I have read that the interest amount of Rs.1500/- per annum on FDs is tax free when investment is in the name of Minors. If I invest in the name of my both children, would I get exemption of Rs.3,000/- or the maximum tax free interest amount is restricted to total Rs.1,500/- ? [venkat.2804@rediffmail.com]
Opinion:
  1. Premium of Life Insurance Policies:
    A] Deduction u/s 80C towards Life Insurance policies:
    Deduction can be claimed only in relation to so much of the premiums as is not in excess of 20% of the actual capital sum assured.

    B] Maturity proceeds of Life Insurance policies:
    Any sum received under life insurance policies is EXEMPT from tax u/s 10(10D), except the following: –
    a] Amount received under a Keyman Insurance policy OR
    b] Amount received under an insurance policy in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured.

    In short, the deduction u/s 80C is not available on the premium exceeding 20% of the capital sum assured & income by way of bonus/ loyalty additions are also not exempt u/s 10(10D) in such cases.

  2. Even if your investment in the instruments (like PPF/ LIC/ ULIP etc) eligible for deduction u/s 80C exceeds Rs. 1 Lacs, It will NOT make the maturity proceeds TAXABLE, which is otherwise exempt under the Income Tax Act-1961n.
  3. Saving Bank account Interest from a Bank (be it a Nationalised bank or a co-operative bank) is Taxable whereas saving bank account interest on account maintained with a post office is exempt from income tax u/s 10(15)(i).
  4. The income of a minor child is required to be clubbed with the income of parent u/s 64(1A). However, wherever an income is clubbed as aforesaid, parent is entitled to have an exemption @ Rs. 1,500/- PER CHILD if the income clubbed exceeds Rs. 1,500/-. Effectively, if the FDR belongs to a minor child, interest would be exempt up to Rs. 1,500/- per Child u/s 10(32).

 

Query 2]
I intend to purchase a residential accommodation (flat) with my brother on sharing basis. We both are Government employees and both have an approx. take home salary of Rs.21,000/- each (Gross Rs. 32,000/- each).
My queries are:
  1. Whether we can get a single home loan, splitting the amount of loan between us equally?
  2. Whether we both can claim tax deductions under relevant sections for the amount of loan so distributed?
  3. Whether such tax deductions are allowed to both for second hand flat purchase also? I will be highly obliged if you can guide us in this matter.
    [shivanath_kota@rediffmail.com]

Opinion:

“Yes” for all the three parts of your query.

  1. You can have a single home loan against the flat sought to be purchased. Unless there is anything contrary to prove otherwise, the loan would be treated in 50:50 ratios.
  2. Both of you can claim tax deduction u/s 80C (towards principal repayment) & u/s 24(b) towards interest payment of housing loan so availed.
  3. Tax benefit is available in respect of secondhand flat also & not restricted to first/ new flat only.

saving bank account interest


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