Q. 1. I have pre-closed a 5-year term deposit at the post office (principal amount: ₹5 lakh) in the third year (June 2021). Because the bail was pre-closed, an amount of approximately ₹27,000 was deducted from the principal as a penalty. Can this ₹27,000 be accounted for as a loss if filing IT for FY22? Do I also need to declare the principal amount as my income during FY22 IT filing? If so, under what section should this appear? Please advise.
2. I have taken out individual health insurance for ₹10 lakh for the period March 2020 to March 2021. Because the premium was paid in March 2020, the 80D benefit only applied to FY20 and not FY21. This has been the case every year I renew my policy. Could you please tell us what needs to be done so that the deductible benefit falls within the relevant financial year and not the previous year?
3. I opened a ULIP in 2018 and have paid four premiums to date. If I cancel my last annual subscription and get the balance in the sixth year, do I have to count it as income and declare it in the IT registration? Please advise.
4. I have been paying premiums for endowment insurance for 11 years. If I pre-close/return this policy and receive the final amount, what are the tax implications for me? Please advise.
A. 1) The penalty for closing time deposits cannot be offset against other income. ₹4.73 lakh is not income and does not need to be reported on your ITR. Only the interest earned/accrued on the deposit is taxable under the heading ‘Income from other sources’.
2) The deduction of the health insurance premium paid can only be claimed in the year in which the payment is made, in which this payment is made with a view to maintaining health insurance.
3&4) Under Section 10(10D) of the Income Taxes Act 1961, all amounts received under life insurance, including a bonus, are tax exempt. Please note that this exemption is only granted if the premium paid is less than 10% of the sum insured if the contract was concluded on or after April 1, 2012 and for contracts concluded between April 1, 2003 and December 31, 2003 March , 2012, the sum insured shall be less than 20% of the sum insured. Insurance companies are only required to deduct TDS if the amount so paid does not fall under Section 10(10D) of the Income Tax Act 1961 and if that amount exceeds ₹1,00,000.
Q. I work in the private sector and my wife is a homemaker. I have investments in mutual funds and occasionally buy/sell stocks (no intraday trading) on their behalf. She has no other income other than the capital gains derived from the sale of mutual funds and shares. Should I pay the 15% short-term capital gains tax and 10% long-term capital gains tax (more than 1 lakh) or could I list them as ‘other sources of income’ which allows me to pay the tax according to the income tax record. Since my wife has no other income, the tax would be less or nil if I paid the income tax lump sum. Can you please advise us the best way to pay the tax according to the law?
A. The monies used to invest in stocks and mutual funds are presumed to belong to your wife and not been gifted by you. In such a case, the sale of listed shares and equity-oriented mutual funds is only taxed under ‘Capital gains’ and cannot be included under ‘Income from other sources’. Since there is no other income, the capital gains can be reduced up to the amount of the unused basic allowance. If the sum of the capital gains does not exceed the basic allowance, there is no taxation.
If the stocks and mutual funds are invested by monies you gave your wife as a gift (without reasonable consideration), then the profits/earnings from such stocks and mutual funds are to be placed in your hands and these will be held in your possession at the respective rates hands taxed.
Q. I am an individual income taxpayer. I have opened a Post Office SS account (Sukanya system) in the name of my daughter who is a minor. I am the natural guardian and it is mentioned in the passport book. This is a tax free account. Do I need to include the annual interest accrued on this account on my annual tax return? And do I have to report the total balance of this account on my income tax return each year?
A. Interest accrued on Sukanya Samriddhi Yojana (SSY) is excluded. You can report the same as the minor child’s tax-exempt income in your respective ITR under minor child’s tax-exempt income. In our opinion, the deposit amount does not need to be disclosed in your respective ITR.
(N. Sree Kanth is a Partner, GSS Associates, Chartered Accountants, Chennai)