Your Taxes

I surrendered my life insurance policy purchased in 2010, after paying five annual premiums of ₹60,000. I have also taken tax rebate u/c 80C each year for the premium paid. I got ₹3,83,000 in October 2014. How is this amount taxed? Do I forego the 80C exemption claimed earlier? How is the ₹3,83,000 shown in my IT returns?

Anurag Sharma

Under Sec 80C, a deduction from the total income is available for premium paid towards a life insurance policy, provided the annual premium paid does not exceed 20 per cent of the sum assured where the insurance policy is issued before March 31, 2012.

Further, if an individual terminates his contract of insurance or the contract ceases to be in force before the premiums have been paid for two years, no deduction shall be allowed to the individual in respect of premium paid in that year. Also, the deductions allowed in respect of the past years would be considered as the income of the individual of such year.

Since you have paid five annual premiums and assuming the annual premium is not more that 20 per cent of the sum assured, 80C deduction shall not be required to be reversed.

Further under Section 10(10D) of the Act, any amount received under a life insurance policy, including bonus, is not taxable for policies issued before April 1, 2012, if the premium was not more than 20 per cent of the sum assured.

Assuming that annual premium paid is not more than 20 per cent of sum assured,proceeds received from surrender of life insurance policy shall be exempt . You should disclose this amount received under exempt income column (if any) while filing your return of income.

I purchased 25 shares of Mindtree at ₹1,250 during FY 2014-15. Thereafter 1:1 bonus was declared and my holding increased to 50 shares. I sold 25 shares post bonus at ₹1,100. Since the holdings are in demat form, how can one decide whether to use LIFO or FIFO to determine which shares were sold and consequently, where short-term or long-term capital gains tax is applicable?

Sumithrananda Reddy

Based on limited facts, it is assumed that shares are held for investment purposes and accordingly any income from transfer of such shares shall be treated as capital gains.

As per section 45 (2A) of the Act, where at any time during the previous year, a person has any beneficial interest in any securities, then, profits or gains arising from transfer made by the depository in respect of securities shall be chargeable to income-tax. It will be considered as income of the beneficial owner of the previous year in which such transfer took place. The cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method (FIFO).

In your case, based on the FIFO method, shares sold by you shall be considered as the original shares instead of the bonus shares.

Further, if an individual holds listed shares for more than 12 months from the acquisition date, the gains resulting from their sale will be classified as long-term capital gains, else it shall be classified as short term capital gains.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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