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T. Banusekar

ARE sums that are received on maturity of life insurance policies taken on or after April 1, 2003, taxable? If so, under what head and to what extent is the same taxable? Will payment of life insurance premium on or after April 1, 2003, qualify for rebate under Section 88? - Anonymous

Reply

Rebate under Section 88 can be claimed on a life insurance premium paid on or after April 1, 2003, but will be restricted to 20 per cent of the sum assured. Sums received on maturity of life insurance policy will normally not be taxable and will be exempt except where the premium of the policy exceeds 20 per cent of the sum assured.

Section 88 provides for rebate being available from the tax of an assessee in respect of sums paid to effect or keep in force the insurance on the life of the individual, the spouse of such individual or any child of the individual if such person is an individual or if the person is a HUF to keep in force the insurance on the life of any member of the family.

The rebate, however, will be available only on the premium as does not exceed 20 per cent of the capital sum assured. The capital sum assured does not include the premiums agreed to be returned or any sums by way of bonus or sums in excess of the sum assured as may be received under the policy.

Section 10(10D) provides for an exemption in respect of sums received under a life insurance policy, including bonus, but does not exempt sums:

a) received by the person depositing any sums for the benefit of a dependent handicapped relative and where deduction has been claimed under Section 80DD or 80DDA, on the premature death of the dependent relative;

b) received under a keyman insurance policy; or

c) received under an insurance policy issued on or after April 1, 2003, in respect of which the premium paid exceeds 20 per cent of the capital sum assured except if it is received on the death of the person whose life is assured.

This sum that is received in respect of (c) above should be taxable as income from other sources, as the same cannot be charged under the other heads of income. Only such sum as is received in excess of the contribution by way of premium should be chargeable to tax and it cannot be said that the contribution made and returned would itself be charged.

Query

My son is a minor. He is carrying on a transport business. The income from this business is clubbed in my hands. The turnover of this business is less than Rs 40 lakh. As the gross receipts of a business carried on by me exceeds Rs 40 lakh, my books of account are required to be audited. I wish to know whether my son needs to deduct tax at source on contract payments, and so on, made in the business carried on by him? - Ramesh Parasrampuria

Reply

Your son would not be required to deduct tax at source except in respect of payments by way of salaries or payments made to non-residents.

Any person other than an individual or HUF must deduct tax at source at the time of payment or credit, whichever is earlier, to a contractor (Section 194C(1)).

In the case of payments or credit to a sub-contractor any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts must deduct tax at source under Section 194C(2). The payment or credit should be to a contractor or a sub-contractor in respect of a contract for any work.

From the foregoing it is clear that on payments to a contractor for a works contract, an individual or HUF does not have to deduct tax at source.

It is only when a payment is made to a sub-contractor for a works contract that individuals and HUFs who are subject to tax audit under Section 44AB in the immediately preceding previous year, by reason of exceeding the specified turnover/sales/gross receipts, must deduct tax at source.

Since your son is not subject to tax audit even in respect of payments to sub-contractors he need not deduct tax at source.

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