Interest on NRE account not taxable

SC Vasudeva

Q. A senior citizen is still working and getting an annual salary of Rs 1,08,000 and is entitled to avail income tax exemption limit up to Rs 3.5 lakh. Is he eligible to add income from others sources up to Rs 2 lakh into his individual salary income? Will income from other sources be taxable?  If so, how much income from other sources he can add to avail the exempt limit of Rs 3.5 lakh?

2. How much amount one can get as help/gift from his relatives/blood-related persons living abroad during a year? Is amount received from relatives living aboard taxable or not? If so, how much tax would be applicable?

3. Is it compulsory that amount shown in the savings account of an individual during 2017-18 accounting year be the same in the return while filing income tax return for 2018-19 (assessment year)?

4. If a person living abroad transfers amount in his savings account or an NRI account, how would he fill up his income tax return and on which form? Would that income be taxable or not if it exceeds the limit of exemption limit? — Apma

A.Your queries are replied hereunder:

(a) A senior citizen who is less than 80 years of age is not required to pay tax up to an income of Rs 3,00,000 for assessment year 2019-20. Your present income being Rs 1,08,000 and another sum of Rs 1,92,000 earned by you as income from other sources. 

(b) Currently, the provisions of Gift Tax Act, 1958, are not applicable. However, Section 56 of the Act provides that any sum of money received by an assessee during the financial year in excess of Rs 50,000 from any person except relatives and other specified persons shall be taxable as “income from other source”.  However, such a receipt, if received from the following relatives, is not taxable.

“Relative” means:

(i) in case of an individual –

(a) spouse of the individual;

(b) brother or sister of the individual;

(c) brother or sister of the spouse of the individual;

(d) brother or sister of either of the parents of the individual;

(e) any lineal ascendant or descendant of the individual;

(f) any lineal ascendant or descendant  of the spouse of the individual;

(g) spouse of the person referred to in terms (b) to (f); and

(ii) In case of a Hindu Undivided Family, any member thereof.

(c) The provisions as stated above are equally applicable to an amount received from outside India. It is necessary that the amount shown in savings account of an individual as on 31.3.2018 should be same while filing the return for assessment year 2018-19.

(d) NRI has an option to deposit in NRE account amounts sent to India in foreign exchange. Such an account can be a savings account or fixed deposit account.  The interest earned on NRE account is not taxable. The income of an NRI, which is earned in India is required to be deposited in Non-Resident Ordinary account. Such an income would be taxable in India. The minimum taxable limit for NRI is same as applicable to an assessee who is not an NRI.

Q. I had invested Rs 3,78,908 (sum assured Rs 3,80,000) in LIC one-time premium policy in 12/2012 and was paid a maturity amount of Rs 5,11,400 in 12/2018 and TDS of 1% (Rs 5,116 ) was deducted from this amount. In form 26AS, the whole maturity amount has been shown as amount paid/credited. At the time of investing, the LIC agent didn’t tell me that the maturity amount is taxable. My queries are as under: 

1. Is my LIC maturity amount 

taxable?

2. In case taxable, what amount is to be considered as income from other sources?

3. Whereas LIC has deducted 1% of maturity amount as income tax, I, who fall in the slab of 30% tax bracket, will have to cough up 29% more as tax. Will it be on maturity amount or on maturity amount minus the amount I invested? Please clarify. — OP Kapoor

A. Your queries are replied hereunder:

(a) According to my opinion, the entire amount received by you from LIC should not be taxable but the amount received by you in excess of the sum paid to the LIC should be taxable.

(b) As stated in (a) above, the excess amount of Rs 1,32,292 should be taxable.

(c) The amount of Rs 1,32,492 would be taxable as income from other sources and shall be includible in your total income.

Q. My son is an NRI and is doing a job in Muscat since 2000. He is living there with his family. 

He does not have Aadhaar card/PAN so far and has never filed an income tax return  as an NRI. He purchased an LIC Market Plus policy for Rs 5 lakh from his NRE Account on August 3, 2010 for a term of 21 years. At present, its surrender value stands at Rs 9,28,000.

He took another policy from HDFC Standard Insurance under the HDFC Children Benefits Plan for Rs 5 lakh on March 10, 2004 for 15 years by paying Rs 33,115 as annual premium.

He is having an NRE account with SBI and NRE account inclusive of NRO account with ICICI Bank .

Please advise how his tax liabilities will be assessed. LIC and HDFC officials have different opinions about the tax deductions.  They seem to be not well conversant with rules in force. — Yogesh Sehdev

A. Interest earned by your son on NRE account is not taxable. However, interest earned on NRO account with ICICI Bank would be taxable if the amount of such interest exceeds Rs 2,50,000 being the limit up to which income tax is not payable by an assessee who is below the age of 60 years. 

The amount received on the expiry of the maturity period shall not be taxable in respect of LIC Master Policy in case the premium paid by him does not exceed 20% of the capital sum assured. The present surrender value is not taxable as the policy is still being continued. The policy with HDFC Standard Insurance having been taken before March 31, 2012 would also be covered in the same category as the master policy taken from LIC.