Latest amendments to Life insurance policies eligible for deduction U/s 80C of Income Tax Act, 1961 and TDS there on
S V Raghunath
Insurance policies are major source tax saving Instruments for Individual and Hindu undivided Families, recently there are lot of changes have taken place including new TDS Section 194DA on Payments received under Life Insurance Policies introduced by Finance ACT ( NO 2 ) of 2014. An attempt has be made present the amendments in easily understandable way.
1) Amendments to section 80C – Tax Effect on Life Insurance Policies:-
While claiming deduction U/s. 80C for Insurance Premium payments paid or deposited on life insurance policies, exemption amount is restricted as below on percentage of Capital Sum Assured:
For this purpose insurance policies are divided into two categories (for easy understanding purpose classified as) one being regular life insurance policies and second being Life insurance policies specified section 80U – Deduction in case of person with disability & 80DDB – Deduction in respect of medical treatment
For regular Life Insurance Policies (other than contract for deferred annuity)
Issued from 01.04.2012 – premium paid not in excess of 10% of Capital Sum Assured (as amended by Finance Act 2012.
Issued from 01.04.2003 and on or before 31.03.2012 – premium paid not in excess of 20% of Capital Sum Assured
And
for other Life Insurance Policies issued in lieu of Sec. 80U (person with disability as specified) & Sec. 80DDB (suffering from diseases and ailments) issued on or after 01.04.2013 – premium paid not in excess of 15% of Capital Sum Assured as amended by Finance Act 2013.
Actual capital sum assured is defined as (Explanation given under 80C (3A))
The minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account—
(i) the value of any premium agreed to be returned; or
(ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.
Therefore deduction U/s 80C is restricted to 10% or 15% as the case may be of the capital sum assured.
It is to be noted that if where the assessee terminates his contract with insurance company by reason of failure to pay any premium
· In case of single premium policy within two years after the date of commencement of insurance or
· In any other case, before premiums have been paid for two years
· In case of ULIPS 80C(2)(x) or (xi) within five years
The aggregate of amount of deduction so claimed will be treated as income in such previous year and shall be liable to tax.
2) TDS on Payment received on Life Insurance policy U/s 194DA [Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-10-2014.]
Section reproduced below
"194DA. Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent:
Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees."
Summarizing the section
· Rate of TDS : 2%
· No Pan cases – TDS rate is 20%
· TDS is deductable where aggregate payment during the financial year exceeds Rupees one Lakh
· Annuities received ie., pension plan are not covered u/s10(10D) therefore liable for TDS subject to limit specified ie., Rupees One Lakh
· Terminated Life Insurance contracts subject to limit specified ie., Rupees One Lakh
Exemption :
· Aggregate payment does not exceed one lakh rupees during the Financial Year
· Policies issued satisfying section 10(10D) and amount received on death of the person other than Keyman insurance policy and U/s 80DD(3) or U/s. 80DDA(3)
· Any sum received U/s 80DD(3) or U/s. 80DDA(3)
· Any sum received under a Keyman insurance policy
Mere Non recording of detailed reason in Assessment Order do not justify the presumption that order been passed without application of mind Posted In Income Tax Case Laws | Judiciary | No Comments » <!-- google_ad_client = "ca-pub-4758308089404121"; /* 336x280, Tax Guru created 1/1/09 */ google_ad_slot = "2487820938"; google_ad_width = 336; google_ad_height = 280; google_ad_region="test"; //-->First of all, we have to examine the documents produced by the assessee during the course of original assessment framed u/s. 147 read with section 143(3) of the Act vide order dated 20.11.2009. We find from the assessment order that the assessee produced complete details of purchases i.e. purchase statement. Ld. counsel for the assessee drew our attention to pages 46 to 48 of assessee's paper book, wherein total purchases made for an amount of Rs.14,67,200/- by way of cash memo is disclosed. Ld. counsel for the assessee stated that these were produced before the AO during the course of original assessment proceedings. On query from the bench, Ld. CIT, DR stated that he has no objection in admitting that these documents were placed before the AO during original assessment proceedings. From the above statement of paddy purchase during the FY 2006-07 relevant to AY 2007-08 from 49 parties was in cash as is evident from the statement. The statement was available before the AO during the course of assessment proceedings and on purchases, a specific query was raised by the AO, which is evident from the questionnaire issued along with notice u/s. 142(1) wherein vide point no.1, which is enclosed at page 51 of assessee's paper book, the query raised was that "details of paddy purchase with name & address of the parties". This was replied by the assessee vide letter dated 07.10.2009, which is enclosed at assessee's paper book page 45, wherein statement of paddy purchase was given. From the very reasons recorded, as reproduced above, clearly reveals that this reopening is on scrutiny of assessment records, which has been gathered that the assessee has paid total amount of Rs.14,67,200/- to 49 parties in cash during the FY 2006- 07 relevant to AY 2007-08 for paddy purchase. From the above facts, we are of the view that the findings of AO now rejecting the objections of the assessee recording reasons for assumption of jurisdiction u/s. 147 of the Act and reasons recorded are contradictory. How this contradiction is, now we can explain that at the first instance the AO for recording of reasons states that from the assessment records it is revealed that the assessee has made cash payments for making purchases and on the other hand, while rejecting the objections of the assessee for assumption of jurisdiction u/s. 147 of the Act he merely states that there was no evidence available in the assessment record, which decipher the fact that the assessee has filed evidence that the purchases are in cash. Admittedly, the fact is available in the assessment record, and that was filed during the course of assessment proceedings by the assessee, that the purchases are made in cash and despite this fact, assessment was framed u/s. 147 r.w.s. 143(3) of the Act. From the above reason, it is clear that nothing new tangible material was available before the AO for reopening the assessment and consequently, the AO acted on the same material, which was available before him at the time of original assessment. We find that this issue is squarely covered in favour of the assessee and against revenue by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion. Further, if 'reason to believe' of the AO is founded on an information which might have been received by the AO after the completion of assessment, it may be a sound foundation for exercising the power under section 147 r.w.s. 148 of the Act. It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. Munshi Mini Rice Mill vs. ITO (ITAT Kolkata), I.T.A No.1650/Kol/2014 - See more at: Mere Non recording of detailed reason in Assessment Order do not justify the presumption that order been passed without application of mind
S. 68 Addition based on mere report of Investigation Wing not sustainable Posted In Income Tax Case Laws | Judiciary | No Comments » <!-- google_ad_client = "ca-pub-4758308089404121"; /* 336x280, Tax Guru created 1/1/09 */ google_ad_slot = "2487820938"; google_ad_width = 336; google_ad_height = 280; google_ad_region="test"; //-->The only issue here is the addition of Rs.60 lacs made by the Assessing Officer as unexplained credit on account of the share application money. On going through the facts of the case, we notice that assessee has filed the relevant details which it could have filed in support of its contention of having received the share application money from each of these shareholder companies. The Assessing Officer has issued summons to the directors of these shareholder companies. In response there to, the directors have not Assessing Officer has not conducted any further inquiry for non-attendance of the persons. Non-attendance on issuing summons itself, cannot be a ground for rejecting all the relevant documents furnished by the assessee company. Summons issued by Assessing Officer have not been received back as unserved. Therefore, it cannot be said that these companies were not in existence at the given addresses. The documents filed with the Registrar of Companies show that these companies were active during the relevant period. Assessing Officer has not verified any of the relevant documents submitted by Assessing Officer for discharging onus u/s 68 of the Act. We also note that the Assessing Officer has not referred nor discussed about the so-called alleged statement of entry providers against the assessee company. It is also not known whether assessee' s name figured in that statement. The contention of the assessee has been rejected without examination and verification of the documents submitted by the assessee. The information received by him from the Investigation department has been made the basis of addition without any further investigation in this regard. Even the process of examination of the directors by issue of summons has not been taken to the logical end as after the failure of the directors to attend in response to the summons issued to them no further steps were taken. The Assessing Officer could have done cross verification about the status of these companies with the respective Assessing Officer of these shareholder companies. In the case of CIT vs Fair Finvest Ltd ITA no. 232/2012 dated 22- 11-2012, the jurisdictional Delhi High Court has held as under:- "6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68. 7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). 8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators; such a link was shown to be present in the case of Nova Promoters &Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. No substantial question of law arises. The appeal is accordingly dismissed." In the present case, as noted above, the AO has not been able to bring on record any valid material or evidence to discredit the evidences and the explanation given by the assessee company. The only evidence which has been referred by the AO is statement of third parties recorded by the Investigation Wing. Admittedly these statements were not recorded by the AO but were recorded by the Investigation Wing at the back of the assessee. The AO has not even referred to the relevant portion of such statement so as to establish the collusive arrangement the assessee company had with these persons. ITO vs. Rakam Money Matters P. Ltd (ITAT Delhi), ITA No.2821/Del./2011, Date of Order- 16th day of October, 2014 - See more at: S. 68 Addition based on mere report of Investigation Wing not sustainable
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