Question
  • I made an investment of ₹3 lakh in India First Life Insurance Co Ltd in their term life insurance plan in September 2010. It was a single premium plan with death benefits of ₹3 lakh (sum assured ₹3 lakh) and premium of ₹3 lakh.

The policy was surrendered in October 2022 and based on NAV on the surrender date, the surrender value was around ₹7.80 lakh. The company deducted at source at 5 per cent on ₹4.80 lakh (excess over single premium value of ₹3 lakh).

The company deducted under I-T sec. 194 DA and showed ₹4.80 lakh under income from salary including pension and showed the TDS deducted. I have not claimed the policy premium under any deductions in my return for AY year 2011-12.

My queries are:

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  1. Is entire capital gain net of premium amount be fully treated as income? Is there no long term capital gain as for sale of shares?
  2. Is there no inflation indexing? My investment was made in 2010 and sale was in 2022. Can we not apply inflation index on my premium value of ₹3 lakh and arrive at 2022 value?
  3. The premium was invested in equity and other debt instruments and NAV arrived at on fluctuating market prices
  4. Are there any exemptions of any part of income received?
  5. I am a senior citizen drawing pension from my employer bank and this surrender income will come in 15 per cent slab and it is a huge drain from my pocket.

L Rangarajan

Answer:
  • For policies purchased between April 2003 and April 2012, the surrender value of the life insurance policy will be exempt from tax if the sum assured is at least 5 times the annual premium paid.
  • As the policy taken by you does not fulfil the condition, the surrender value of your life insurance policy is taxable due to which the life insurance company has deducted the TDS under section 194DA.
  • Deduction under section 80C is not required to be reversed in your case as you have not availed the deduction in the respective year of the premium payment. The surrender value of the policy will be taxable under ‘Income from other sources’.

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Question
  • Myself and my spouse are working in PSU. We have purchased a plot in our joint names and intend to construct a house thereon. I have availed a home loan from my employer and that loan is also in joint names. However, the EMI will be recovered from my salary only as per the employment conditions.

Now, if both of us wants to claim the I-T benefits for the interest and also for the repayment under Section 80 C, is it necessary that my spouse has to pay the 50 per cent share of the EMI to me every month?

Whether it will be sufficient if she transfers 50 per cent of the EMI every month to my bank account?

Unni

Answer
  • It is required for your spouse to service the loan in order for her to claim the benefits of loan repayment under Income Tax Act, 1961, with respect to her share in the property. The deduction of the interest portion of the loan, under Section 24 of the Income Tax Act, 1961, can be availed only post completion of the house property.
  • So the interest paid until completion of the house property will be termed as pre-construction interest and the same can be claimed in five equal instalments in each assessment year post completion of the house property. Your employer is to provide an interest certificate each year during the tenure of the loan in both your names in order to claim the deduction in each of your hands.
  • Under Income Tax Act, 1961, an assessee can avail deduction under Section 80C with respect to the repayment of the principal portion of the EMI if the lender is assessee’s employer where such an employer is a PSU.
  • It is being assumed that both yourself and your spouse work for the same PSU in which case the share of principal repayment of the EMI can be claimed under Section 80C of the Income Tax Act, 1961, in each of your hands.

(The writer is a partner, GSS and Associates, Chartered Accountants, Chennai)

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