Section 87A
Query 1]
Kindly inform me whether the tax credit of Rs. 2,000/- for those whose income is below Rupees five lakhs is available for the financial year 2014-2015 and also for coming years? [Sundar Krishnaswamy-kalyanisundar33@gmail.com]
Opinion:
Section 87A was introduced by the Finance Act-2013 & is applicable from the AY 2014-14 & subsequent assessment years. By section 87A, tax rebate is provided to an individual resident tax payer whose total income doesn’t exceed Rs. 5 Lacs. The rebate shall be equal to the amount of income tax payable on the total income or Rs. 2,000/- whichever is lower. In the relevant FY 2014-15 also, tax credit of Rs. 2,000/- would be admissible if the total income of individual assessee is not exceeding Rs. 5 Lacs. Readers may please note that no rebate is admissible u/s 87A to HUF.
Query 2]
- Please guide-
(a) Are insurance policies maturity proceeds are subject to Income Tax?
(b) If they are, then whether it is on the maturity value or on the difference between the maturity proceeds received & investment amount? [V.S.Deogaonkar, Amravati-vijaydeogaonkar@icloud.com] -
I had taken unit linked LIC Wealth plus plan in March 2010 within which date of commencement of policy was 22/03/2010, date of expiry of policy was 22/03/2018, sum assured was INR 2,50,000/-, due date of last premium was 22/03/2012. I had opted for half yearly payment of Rs. 25,000/- making annual premium of Rs. 50,000/- exactly equal to 2o% of sum assured. I surrendered the policy in October 2013 and received amount of Rs 1,41,855/- to my bank account directly on 01/11/2013. I filed return for AY 2014 15 without considering this receipt. There is no amount or interest seen due to me and payable towards IT department in intimation under section 143(1) of IT Act and my AS 26 tax credit statement. Was I liable to pay tax in this case and if yes how much? Can previous year tax be pay in current year and how? [parmanand******@yahoo.co.in]
Opinion:
After elaborate coverage in the earlier issues of Tax Talk date 16.03.2015, I am flood with lot many queries about the taxability of proceeds (maturity or otherwise) receive from life insurance policies, two of which are select here to revisit the tax ability issue again.
To reiterate, entire maturity benefits (including bonus) would be tax free in the hands of policyholders if, at any point of time during the policy term, annual premiums payable in any year do not exceed 20% of the basic sum assured in respect of policies issued on or after 01.04.2003 but before 31.03.2012. For policy issued on or after 01.04.2012, annual premium should not exceed 10% (15% in case of handicapped person or person suffering from specified diseases) of minimum sum assured. Effectively, there is no escape from tax on insurance proceeds if the premium paid exceeds 20% or 10% or 15% of the sum assured.
Further, premium paid on life insurance policy is eligible for deduction u/s 80C subject to a maximum amount of 20% or 10% or 15% of the sum assured, as mentioned above. However, there is a penal consequence if the policy is discontinue in certain cases. If anyone discontinues a Unit Linked Insurance Plan before paying for 5 years (2 years in respect of other insurance policies) from commencement of policy then taxpayer won’t be able to avail any tax benefits u/s 8C in the year in which the taxpayer terminates the plan. Further, the quantum of deduction already take in earlier years u/s 80C would be deem as the income of the taxpayer in the year in which policy is so terminate.
Coming to the specific issues raise in the first query. It may be note that not all the life insurance proceeds are tax free. If require condition stipulate in section 10(10D) as mention above is not fulfill, the proceeds would not be tax exempt. An important question raised by you. Is regarding the computation of taxable income if one fails to comply with the conditions of section 10(10D). Which amount would be taxable in such case? Argument by the revenue would be, since exempt u/s 10(10D) violation would make entire receipt taxable.
Argument by the taxpayer would be simple, that tax is leviable only on income & amount received over & above the amount invested is the only amount that could be termed as income. Further, argument of taxpayer of treating the investment as capital assets and offering. The income after indexation benefit as “Capital Gain” income could not be rule out in such cases. There is no clarity on the issue. Tax implication is controversial & subject to all the possible argument & interpretation as mentioned above. A suitable clarification by the CBDT would be in the interest of the tax payer as well as revenue.
As far as second query is concerned, the policy was issued in between 01.04.2003 to 31.03.2012 & premium amount in any of the year doesn’t exceed Rs. 20%. Resultantly, none of the conditions stipulate in section 10(10D) is violate. Entire maturity proceeds would be tax free. However, I am told that LIC wealth plan is Unit Link Insurance Plan & the same is discontinued within a period of 5 years and so, entire deduction allowed earlier u/s 80C was taxable in the FY 2013-14.
You have already filed your income tax return for the FY 2013-14 without considering this income. You have an option to file revise return if the original return was file by you within due date. Option of revising the return is not available if the original return is not file within due date. Rather, there is no easy remedy available with the taxpayer in such cases but either to wait & watch or after paying the tax anyhow file the revised return so that any subsequent probable penal consequences could be avoided. There is no provision to pay the tax of the preceding year income in the current year in such case.
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