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Life Insurance Policy rules

Life Insurance Policy Taxation Rules

In this article, we will discuss about Life Insurance Policy Taxation Rules. Important points that need to be considered in case of taxability of Life Insurance Policy   1.. Deduction under Section 80C 2. Exemption under Section 10(10D) on maturity of policy 3. TDS on the life insurance policy 4. Tax implication of single premium life insurance policies   Buying a life insurance plan is very important for people who have dependent family members. The policy will help you protect the financial future of your parents, spouse & children. Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers tax deduction u/s 80C of Income Tax Act.   Deduction under Section 80C   Any premium paid towards a Life Insurance Policy is allowed as deduction. A taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction u/s 80C in respect of premium on life insurance policy paid by him during the year. However, the LIC Premium is allowed on ACTUAL PAYMENT BASIS only (not on due basis). It will be allowed even if the premium payment is made in cash. In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children. No deduction is available in respect of premium paid in respect of policy taken in the name of any other person, other than as mentioned. In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF. Limit of Deduction u/s 80C – Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.   Minimum holding period   Minimum holding period in case of Life Insurance Policy is 3 years. In case policy is terminated/surrender before the minimum holding period then the deduction allowed in earlier years would be deemed as income of the previous year of termination. Further, no deduction will be allowed in respect of payment made towards such policy which is terminated during the year of termination.   Exemption under Section 10(10D) on the maturity benefit   Section 10(10D) of the Income Tax Act allows any amount received such as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy as exempt if premium paid on the policy must not be more than 20% of sum assured for policies issued before April 1, 2012 & 10% of sum assured for policies issued after April 1, 2012.   In case of policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability u/s 80U or suffering from disease or ailment given u/s 80DDB, limit will be 15% of sum assured.   Benefits of section 10(10D) also apply to any gains arising out of ULIPs & Single Premium Life Insurance Policies (if the conditions mentioned in section 10(10D) are met).   Deductions are applicable to both foreign as well as Indian life insurance companies.   TDS on the life insurance policy   In case life insurance policy is taxable, TDS u/s 194DA will be applicable if the amount received is more than ₹1 lakh. TDS rate will be 5% on the income component (amount received – total premium paid in the tenure of the policy). Any amount received under life insurance policy is taxable under the head “Income from other sources” as per the applicable income tax slab rate, if not exempt u/s 10(10D).   When will be the amount received as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy is taxable ?   There are certain situations when Section 10(10D) does not apply, If the premium paid towards the life insurance policy is more than 10% of the sum assured for policies issued after April 1, 2012 & for policies taken before April 1, 2012, if premium paid more than 20% of sum assured, then tax benefit is not available.   Also, as per Finance Budget 2023, any sum received from life insurance policy having premium annually in a financial year is more than Rs 5 lakh would be taxable from 1st April 2023. If a policyholder already has a life insurance policy with premium exceeding Rs 5 lakhs in a financial year, then it will be exempt from tax, if all the other conditions u/s 10 (10D) are satisfied. The new tax law is applicable only to the policies purchased on or after 1st April, 2023.   This Income tax rule will NOT be applicable on ULIP policy. Any amount received on the death of the person insured will still be exempt from tax.   For ULIP plans, the tax exemption limit is limited to Rs 2.5 lakhs annual premium payment in a financial year.   Tax implication of single premium life insurance policies   For a single premium payment life insurance policy, the premium paid is often more than 10% of the sum assured. Hence, the maturity benefit of the policy will be taxable under the head “Income from other sources” as per the applicable income tax slab rate. TDS u/s 194DA @ 5% will apply on the income component (amount received – total premium paid in the tenure of the policy) if the amount received is > ₹1 lakh. For example, if a policy is taken on 12 July, 2013 with a maturity value of ₹3.5 lakh, the single premium amount will be approximately ₹95,000, which is over 10% of the sum assured. Suppose, if assessee surrendered the policy on 16 July, 2019 & he/she received Rs 1,50,000 then the insurance company would deduct TDS @ 5% on Rs 45,000 (income component). Rs 1,50,000 received as surrender value will be taxable under the head “Income from other sources” as per the applicable income tax slab rate.   Comparison of Old Regime & New Regime tax (under section 115BAD) for investing in life insurance policies  

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Understanding the Meaning And Basic Concepts Of Money Laundering

Let us start this article by understanding some basic terminologies. What is illegal money? By the term illegal money, we can understand the money which has been obtained from doing illegal activities ( proceeds of crime ) like Murder, Extortion, bribery, Drug trafficking, Kidnapping, etc. The process of converting such proceeds of crime into legal and white money is known as money laundering. Illegal money can also be referred to as dirty money which can easily be clean by applying various tactics of money laundering. In India, there is a law made for preventing such activities of money laundering known as Prevention of money laundering Act, 2002. This law is enforced by Enforcement Directorate (ED) in India. Money laundering has an adverse effect on the economy. It can erode the nation’s wealth by fluctuating the demand and supply of cash, making interest and exchange rate more volatile. Money laundering involves three distinct processes, namely: 1). Placement: This is the very first stage in which the proceeds of crime is injected into the formal financial system. 2). Layering: In the second stage, the money which is injected in the financial system is spread or moved over the various transactions in different accounts and different countries, thereby it becomes difficult to trace the source and origin of money. 3). Integration: In the last stage, money enters the financial system in such a way that original association with the crime is sought to be obliterated so that the money can then be used by the offender or person receiving as clean money. There are various methods of laundering illegal money; 1. Creating Shell and Bogus companies. 2. Investing in Real estate i.e. Buying land for money and then selling it making the profits legal by paying tax on such profit. 3. Cash smuggling, transferring money to the Swiss bank. 4. Hawala transactions. If left, unchecked money laundering can destroy the nation’s economy by changing the demand and supply of cash. It also affects the interest rate, exchange rates by making it volatile. Article Written By- Pushp Kumar Sahu Want to get your own Article Published? Do send us your article at taxeffectsofficial@gmail.com or alternatively send your story to our Facebook Inbox facebook.com/taxeffects. Share It . .

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Precautions to be taken while entering into a Real Estate Transaction

In this article, we will be discussing the precautions to take care while entering into a real estate transaction. Let us understand this article in the form of a short story; There are two brothers namely Pushp Kumar Sahu and Uday Kumar Sahu who have entered into a transaction of immovable property worth 48 lakhs INR in cash (value as per Stamp valuation authority 60 lakhs INR). But being not aware of the income tax provisions, they made a transaction violating the various provisions of the income tax act, 1961. Both brothers jointly sold the said property and thereafter received the whole consideration in cash and the same is deposited in the bank account. The first violation of income tax provision which is made by the Sahu brothers is of Section 269ST, as they have received the entire sale consideration in cash which exceeds 2,00,000/- INR. Therefore the penalty will be levied on them under section 271DA at the rate of 100% of the amount received in cash. The second violation made by them was; they have sold the said property at a rate less than the rate as determined by stamp valuation authority [ section 50C]. As per section 50C, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, is less than the value adopted or assessed by an authority of a state government ( stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted for the purposes of section 48, be deemed to be the full value of consideration received as a result of transfer. The last mistake made by Sahu brothers was that they have deposited the entire cash received from such sale in a bank account. As they have deposited the cash exceeding 10 lakhs INR in a single saving account. Because of such bulk deposit, bank official filed an annual information return u/s 285BA to the income tax department. Due to such filing of AIR, the transaction has been easily tracked by the department and in order to take such transaction under income tax assessment, the department issues a show-cause notice to assessee that why this transaction has not been reflected in their IT returns. Originally this income has been evaded by the assessee brothers, therefore A.O. has full access to issue income escaping notice to both assessees u/s 148 and completes the assessment as provided u/s 147. Moreover, A.O. can issue a notice under section 271DA for violating provisions of 269ST for levying 100% penalty or can issue a notice under section 271(1)(c) for concealment of income. Happy readings! Disclaimer: The information contained in this website is provided for informational purposes only, and should not be construed as legal/official advice on any matter. All the instructions, references, content, or documents are for educational purposes only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this article or for any conclusion of the information. Share It . .

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Sukanya Samriddhi Account

The Central Govt. launched the ‘Sukanya Samriddhi Account’ programme in January 2015 with an objective to promote the welfare of girl child. It is a small deposit scheme for girl child which ensures their secure future and reduce their financial difficulties which they might have in future for their education or even for their marriage. It was also a plan which was toward the mission of ‘Beti Bachao, Beti Padao’ which was also launched on the same day. So, Let’s understand full details regarding it in very simple language: 1. Opening of Account: The account may be opened by the natural or legal guardian in the name of a girl child from the birth of the girl child till she attains the age of 10 years. Also, any girl child, who has attained the age of 10 years, one year prior to the commencement of these rules, shall also be eligible for opening of the account under these rules. A Depositor (such guardian) may open only one account in the name of a girl child under these rules. Birth Certificate of such girl child AND Identity and residence proof of the depositor shall be submitted. Such guardian shall be allowed to open the account for two girl children only (except in cases when twin/three girl child is born together). It can be opened with Post-Offices and Notified banks as well. 2. Deposits: The account may be opened with an initial deposit of Rs. 1,000* and thereafter any amount in multiple of One hundred rupees may be deposited but the total amount deposited during the entire year shall not be less than Rs. 1,000 * and shall not exceeds Rs. 1,50,000 as well. The deposit in the account may be made through Cash, Cheque, or Demand Drafts. [* Now this limit of Rs. 1,000 has been reduced to Rs. 250/- only] Deposits can be made up to a maximum period of 14 years from the date of opening the account. After this period the account will only earn interest as per applicable rates. 3. Interest on Deposits: Interest at the rate, to be notified by the Govt., compounded yearly (the account holder may also opt for monthly interest) shall be credited to the account until the account completes 14 years. The current interest rate as on date is 8.5% per annum. 4. Operation of Account: The account shall be opened and operated by the natural or legal guardian of the girl child till the girl herself attains the age of 10 years. On attaining the age of 10 years, the girl child herself may operate the account. However, deposit in the account may be made by the guardian or any other person or authority. 5. Premature Closure of Account: In the event of Death of the account holder (i.e. the girl child), the account shall be closed immediately on the production of the Death Certificate and the balance remaining in the account shall be paid to the guardian with interest. Apart from this, Where the Central Govt. is satisfied that operation or continuation of the account is causing undue hardship to the account holder, the govt. may allow pre-mature closure of the account only in the case of extreme compassionate grounds such as medical support in life-threatening diseases, death etc. 6. Transfer of Account: The Account may be transferred anywhere in India if the girl child (i.e. the account holder) shifts to any other place other than the city or locality where account stands. 7. Withdrawal: For the higher education and marriage of such girl child, withdrawal up to 50% of the account balance at the end of preceding financial year shall be allowed. But, the withdrawal shall be allowed only when the account holder girl child attains the age of 18 years. 8. Closure on Maturity: The account shall mature on when the Girl child completes her 21 years but if her marriage takes place before being 21 years then it shall be deemed as mature. But the girl child has to furnish a declaration that she is not less than 18 years on the date of Closing the account. 9. Income tax benefit on Sukanya Samriddhi Account: The deposits made to the account, and also the proceeds and maturity amount are fully exempt from tax under section 80C of Income Tax Act. It is similar to PPF in respect of Tax Deductions. Share It . .

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Benami Transactions Act [Including Amendment, 2016] – Complete Overview

Recently, Govt. has introduced a law which has given a sudden jolt to the real estate sector. But the fact is, it is not only the real estate sector which would be affected by this law but it would have an impact on all types of properties be it movable or immovable. This law is called the Benami Transaction Act. Although, It is not a new act and it was originally created way back in 1988 but it was only the recent amendment brought in 2016 which has made a complete overhaul of this act and has made it really strong. But, of course, you might be thinking right now; what is it? How does it affect me? why should I concerned about it? Well, you’ll get to know all these things by the end of this article. So, Let’s analyze it in a very simple language and step by step:- 1. What is Benami Property? Benami literally means something “without a name”. Therefore, you could easily assume it that any property without a legal name and the valid owner is called Benami. It is a Property which is purchases/sold under a Benami Transaction and it also includes the money involved in such property. Property here means; assets of any kind, whether movable or immovable, tangible or intangible and it will include any right, interest, title to any property. 2. What is a Benami Transaction? Benami Transaction means; a transaction or an arrangement where: (A) A property is transferred to a person but the Consideration for such property has been given by another person. & Such property is held for the ultimate benefit of the person who has provided the consideration. (B) A Property has been taken in a fictitious name. [i.e. Purchased in Fake name] (C) A Property which has been taken in such manner that the owner (as per documents) of the property is not aware of such ownership. [i.e. Purchased in some unknown person name] (D) The Person giving the consideration for purchase is not traceable or is Fictitious. [i.e. Purchase money is coming from unknown sources] EXCEPTIONS: There are also some specific Exceptions to the general rule which means if Property has been taken in such manner then it will not be considered as Benami. These Exceptions would be in cases WHEN THE PROPERTY IS HELD BY: – A Karta/Member of HUF and the property is held for his own benefit or benefit of other members in the family and considerations for such property is coming from known sources of HUF. [Important Note- If a Member of HUF purchases property in the name of Another Member then that would not be taken as Exception.] – A Person standing in a fiduciary capacity (i.e. working on behalf of and benefit of other). If s/he is holding any property for the benefit toward whom he stands in such capacity then that would not be called as Benami. e.g. A share marketing company (say, Sharekhan) hold shares in the fiduciary capacity on behalf of their clients then that would not be considered as Benami. – Any Individual (buying property) in the name of his/her spouse or in the name of any child & consideration for such property is coming from the known sources of such individual. – Any Individual (buying property) in the name of Brother or Sister or lineal ascendant/ descendants, where the name of brother or sister or lineal ascendant/descendant AND the Individual appear AS JOINT-OWNERS in any document & consideration for such property is coming from the known sources of such individual. 3. Why People involved in Benami Transactions? It is generally used to enter into by the people who have unaccounted money; more commonly known as Black money. People make the Benami Transactions to hide their name and use the black money in various types of properties in such names which is either fake or which are not under the lenses of tax departments. Also, Another reason for entering the Benami Transactions is to hide the true ownership of the property from their lenders, creditors, and banks etc. 4. Who are the Parties involved in it? In any Benami Transaction the following parties are involved: (i) Benamidar: It is the person/fictitious person in whose name the property has been purchased. (ii) Beneficial Owner: It is the person who has provided the consideration for purchase. (iii) Seller: It is the person who is selling the property. 5. Which people would be affected by this Act? The people who have entered in any way transactions which are covered under Benami especially the one who has the Black Money and invested the same into Benami Transactions would be hugely affected by this act. They have to bear the Huge penalties and prosecutions under the Act. Also, the real estate sector would be certainly impacted with this and every party involved must be very clear about the true ownership of the property. People who have taken properties from their genuine sources and for their own direct benefit would not be affected by this law. 6. What are the Penalties & Prosecutions under the Act? The Act prescribes the different penalties and prosecutions for different defaults which are as follows: (i) Penalty for Benami Transactions: Where any person enters into a Benami Transaction the beneficial owner, benamidar and any other person who supports any person to enter into the benami transaction shall be guilty under the act and punishable with rigorous imprisonment for a term between 1 year to 7 years (+) shall also be liable to fine which may be extend up to 25% of the Market Value of the Property. (ii) Penalty for False Information: Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term between 6 months to 5 years (+) shall also be liable to fine which may extend up to

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All About HUF – A Clear Approach

I believe you must have heard of Hindu Undivided Family (HUF). Most of the people think that this is a person which are created by some kind of Agreements etc. Well, if you are also one of them then it’s time to bust your myth about that. Because the fact is something far different from that. So, Let’s understand the concept in a bit detail: 1. What is HUF? A Hindu Undivided Family (HUF), as its name suggests is Joint Family which is taken as a separate entity from that of the Individual Members consisting in HUF. The Head of the Family (i.e. Father/ any elected person in case of the death of Father) is called Karta which operates the business of the HUF. 2. How HUF is created? HUF does not arise from a contract. But, it is a Creation of Law. After marriage as soon as a Child is Born, HUF comes into existence. Hindu, Buddhists, Jains, and Sikhs can form HUF. HUF usually has assets which come from a Gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF. 3. Which Individuals are part of HUF? HUF consist of Co-Parceners (who are Family Members) and the distant relatives i.e. called as Members of HUF. 4. Who are Co-Parceners and Members? Co-Parceners: Co-Parceners are the Family Members and it is consist of 4 levels of Lineal descendants including the first male ancestor. It is only a Co-Parcener who can demand the Partition of HUF. It will include the following: 1. Mr. X (Karta) 2. Son/ Daughter of Mr. X 3. Grandson/Granddaughter of Mr. X 4. Great Grandson/ Great Granddaughter of Mr. X [Note: HUF can’t be expanded over the above 4 lineal descendant lines]   Members of HUF: Any other distant Relatives who are not the Family Member (e.g. Brother-in-law, Sister-in-law etc.) would be deemed as the Member of HUF. Although they are Members of HUF, they are not the Co-Parceners. A member can not demand the Partition of HUF. [Imp. Note: Wife is not considered as the direct part of HUF i.e. Co-Parcener. She will be a Member in Husband’s family HUF. Although, She will be a Co-Parcener in her Father’s Property. ALL CO-PARCENERS ARE MEMBERS, BUT ALL MEMBERS ARE NOT CO-PARCENER.] 5. Partition of HUF? Under Hindu Law, Partition of HUF can be of 2 types: Total Partition & Partial Partition;   Total Partition: It is a type of Partition in which entire family property is being divided among the Co-Parceners. After the total partition HUF ceases to Exist. Partial Partition: It is a type of Partition in which some of the willing co-parceners get out of the HUF and rest of them continue the HUF. The Partial Partition may be property specific also when some of the properties are divided among the co-parceners and balance continue to be the property of the HUF.   [Imp. Note: Under the Income tax Act, ONLY TOTAL PARTITION IS RECOGNISED, a partial partition is not considered as the partition.] 6. Assessment after Total Partition: When a claim of total partition has been made by any Co-Parcener on behalf of HUF, the Assessing Officer shall enquire about it. For this, he shall serve a notice to all the Co-Parceners of the HUF and enquire whether the total partition has taken place and if yes, then on which date it is affected. If the Partition of the has been affected in the previous year, the total income of the HUF of the previous year up to the date of partition shall be the Total Income of HUF. EVERY MEMBER SHALL BE JOINTLY AND SEVERALLY LIABLE for the tax on such assessed income of HUF. The Several liability of a Co-Parcener would be proportionate to the share of joint family property allotted to him on such partition. 7. Some Important Points: Is there any minimum no. of co-parceners required for an entity to be taxed as HUF? A HUF can be formed with just two members one of whom is a co-parcener. But for an entity to be taxed as a HUF, it should have at least two co-parceners. For example; When any HUF consist of only Husband and Wife, then there is only one co-parcener (because the wife is a member but not a co-parcener) and therefore, in such case income can’t be taxed in hands of HUF. It will be taxed in the hands of Individual Co-Parceners. Can HUF pay remuneration to Karta or Any Member of HUF? Yes. As per Supreme Court decision in Jugal Kishor Baldeo Sahai Vs. CIT, such remuneration would be deductible if it is paid: – Under a valid and Bonafide Agreement; and – In the interest of and expedient for the business of family; and – Reasonable and not Excessive. What is the position of a Married daughter? Unmarried daughters would always be a Co-Parcener and have the equal right over the property just like a Son. Although, the Status of Married Daughters would be as follows: – In Her Father’s Property: She will remain a Co-Parcener even after the marriage. – In her In-Laws House: She will always be a Member but Not the Co-Parcener. Although, Husband can give his co-parcenary right to her wife. Can HUF run a Sole Proprietorship Business? Since HUF is one person as per Income Tax Act, a Proprietor of a business can be an Individual or a HUF. A Proprietorship concern is not governed by any specific law as such, and therefore there is no bar on HUF becoming a Proprietor of any concern. In case of any Ideas, Suggestions or Any other information, please do comment below. You can subscribe for our blogs @taxeffects.com and providing us your email in the “Follow” section. You can also reach us at taxeffectsofficial@gmail.com. Share It . .

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