Tax Query: Which ITR form for insurance agents?

Sudhakar Sethuraman | Updated on: Apr 23, 2022

I am 51 years old and have investments in NPS Tier-1 account and equity mutual funds. Kindly clarify taxation aspects in respect of the following: 1. I wish to activate NPS Tier-2 account for savings and allocate a greater percentage of this investment in equity. What are the tax implications when I withdraw these investments within one year/three years? If I withdraw after attaining 60 years, what is the tax implication? 2. I have parked some emergency funds in liquid mutual funds. What is the tax implication when I withdraw these funds?

S. Subramanyan

There are no specific provisions on taxability of withdrawal from NPS Tier-II account under the Income Tax Act, 1961 (“the Act”). If some income is not specifically exempt, then it is construed to be taxable. Considering that the contribution to Tier-II account gets allocated to different categories of funds — equity, corporate bonds and government securities at their Net Asset Value (NAV), it is logical to treat such contribution as investments and treat any profits thereon as capital gains as per section 45 of the Act. Further depending on the period of holding, it could be regarded as long-term capital gains (LTCG) or short-term capital gains (STCG). The taxability would not change in case the units are redeemed by you after attaining 60 years.

If equity-oriented mutual funds are redeemed within a period of 12 months, it would be regarded as STCG and be taxable at 15 per cent (plus education cess and applicable surcharge) as per section 111A of the Act. On the contrary, if the mutual funds are redeemed after 12 months, it would be treated as LTCG. As per section 112A of the Act, the LTCG over and above ₹1 lakh would be taxable at a rate of 10 per cent (plus education cess and applicable surcharge) without the benefit of cost indexation.

I am retired and living on interest from bank deposits, commission as insurance agent. I also buy and sell shares (short-term and long-term profits) some times. I would like to know which ITR Form I should use for filing tax returns.

P K Divakaran

Understand that you are working as an insurance agent earning commission/brokerage income from sale of insurance policies. As a result, commission income is taxable under the head ‘Income from Business or Profession’. As per the instructions issued by the Central Board of Direct Taxes (CBDT), you would be required to file ITR-3 and report the commission income under the head, ‘Income from Business or Profession’; income from bank deposits under ‘Income from Other Sources’, while capital gains (on sale of shares) under the head, ‘Capital Gains’ in your return of income.

The writer is Partner, Deloitte India.

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Published on April 23, 2022
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