Your Taxes

My son had taken a life insurance policy about 15 years ago when he was here in India. He has since moved to the US where he is employed, and he does not want to continue with the policy.

The insurer said that the policy could be surrendered, but he would have to forfeit the entire bonus accrued on the policy. Further, he would get back only around 70 per cent of the premiums paid so far. Will my son be required to pay any tax on the surrender proceeds ?

He has not claimed any benefit under Section 80C during any of the years. Will the insurer deduct TDS on surrender proceeds?

Rajan

As per Section 10(10D) of the Income Tax Act, 1961, any sum received on maturity or surrender of a life insurance policy (taken on or before March 31, 2003) is not taxable. Hence, the surrender value received from Exide Life Insurance will not be taxable as we understand from the facts that the policy was taken 15 years ago.

With respect to tax withholding, the provisions of Section 195 of the Act would apply since your son would be a non-resident for India tax purposes. 

As per the same, requirement to withhold tax would per se arise only if the sum is chargeable to tax. 

Since the amount that your son would receive from the insurer would be tax exempt, there would not be a tax withholding requirement at the time of payment.

I am an NRI and have earned ₹2 lakh as professional fee in FY15-16. I hold tax residency certificate.

Please let me know whether the TDS rate should be 10, 15 or 20 per cent, as per DTAA with the US.

Swanand Lele

It is not clear from the facts if you have any taxable income in India besides the professional fee. 

If you do not have any other income, then your total income for FY 2015-16 (₹2 lakh) would be lower than the basic exemption limit of ₹2.5 lakh. 

Hence, you could prefer an application under Section 195(3) of the Income-Tax Act, 1961 to the jurisdictional tax officer for grant of a certificate authorising you to receive the professional fees without deduction of tax. 

Once the certificate is issued, you would have to inform the payer of this and request them not to deduct tax. 

If your taxable income (including the professional fee) exceeds ₹2.5 lakh, then the applicable TDS rate under the Income-Tax Act, 1961 would be 10 per cent (plus applicable surcharge and education cess).  However, you could explore the possibility of getting exemption under Article 15 of the DTAA between India and the US (Independent Personal Services). 

Please note that if you do not have a Permanent Account Number (PAN) in India, then the rate of TDS could be 20 per cent.

The writer is Partner, Deloitte, Haskins and Sells LLP. Send your queries to taxtalk@thehindu.co.in

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