Why. I am 25 years old. I have an endowment policy which started in November 2020 for which I should pay 77,000 as annual premium for 10 years. Also, I have taken a pure term insurance policy in October 2021 for a tenure of 25 years. I want to surrender the endowment policy. Is it appropriate to do so and if so, what are its pros and cons?
Of. Nitya Kalyani Answers, It is prudent that you have built protection through a term policy before even thinking of giving up an endowment policy. Provided your term policy gives you adequate coverage, let us look at some of the pros and cons of stopping an endowment policy.
The pros and cons of dropping the endowment policy are as follows. I say leave because you started the endowment policy barely a year back and it doesn’t achieve a surrender value. If you stop paying the premium now, you will lose the premium already paid.
As on the date of commencement of your policy, you have paid two annual premiums and as per normal surrender rules, your policy will acquire a paid-up/surrender value after paying three annual premiums – however, this is a The point is you should check with your policy and insurer.
If you continue with your policy till that date, you can either pay it off or surrender it, thus avoiding completely forfeiture of the premium already paid.
If you make it a paid-up policy then you do not have to pay any further premiums and the coverage will continue at the reduced Sum Assured for the remaining term of the policy and will complement your term policy coverage in your overall financial plan.
If you surrender it, you will get a refund of the pre-determined portion of the premium and the coverage will terminate. Remember that any new endowment policy in the future will have higher premiums as a factor in your age. You may also be denied the new policy due to advancing age and/or health challenges.
You also need to assess on absolute basis if the Sum Assured is sufficient for you. You may want to review it from time to time and take additional term cover. An important point to remember is that a term policy will terminate with the default of just one installment premium.
Why. I am working in a private firm. I earn ₹20,000 every month. I have invested ₹50,000 in the stock market, mostly in short term investments of one or two months duration. Out of the profit I get from these investments, I donate 25% to charity, the transaction is being done directly from my savings bank account. I want to know the details of tax levied on my profit.
N Sri Kant Reply: Since the holding period of the shares is approximately one to two months, the gain on sale of such shares (STT paid at the time of both sale and purchase) will be treated as short-term capital gain. These short term capital gains are taxed at a special rate of 15% plus applicable cess.
Why. My company donated ₹ 1 lakh to Ram Janmabhoomi Trust. My chartered accountant has now told me that the company is not eligible for deduction under section 80G. Is that correct if not please advise what is the correct situation?
N Sri Kant Reply: Deduction on account of section 80G of the Income Tax Act, 1961 can be claimed if the recipient is a registered charitable trust which has proper registration with the Income Tax Department for section 80G deduction on the date of such donation. In addition, you must have a receipt issued by Didi containing the name of the organization, 80G certificate, PAN and the address of the charitable organization, the same needs to be filled in the ITR of the company.
Also, donations exceeding ₹2,000 have to be made in non-cash mode to avail deduction under section 80G of the Income Tax Act, 1961.
Deduction under section 80G(2)(b) of the Income Tax Act, 1961 will be allowed on 50% of the amount donated or 10% of the gross total income, whichever is less. You can check whether all these conditions are satisfied before claiming the deduction.
Why. I had bought a money-back policy from Kotak Mahindra Insurance Company. There are 4 payouts as per the terms of the policy. I got the first payment of ₹ 1.32 lakh. The insurer has deducted any TDS. Please clarify whether I have to show the payment as income and pay applicable tax?
N Sri Kant Reply: As per Section 10(10D) of the Income Tax Act, 1961, any amount received under a life insurance policy including bonus is exempt. You may note that this exemption is available only if the premium paid is less than 10% of the Sum Assured if the policy is taken on or after 1st April 2012 and in case of policies between 1st April 2003 and 31st March 2012 In , the policy paid-up amount should be less than 20% of the Sum Assured.
Insurance companies are required to deduct TDS only if the amount paid is not covered under section 10(10D) of the Income Tax Act, 1961 and such amount exceeds ₹ 1,00,000.
(K. Nitya Kalyani is a business journalist specializing in Insurance and Corporate History and N. Sri Kanth Partner is GSS Associates, Chartered Accountants, Chennai)
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