Consider rental income before filing tax returns

The liability to deduct tax at source is on the licensee and not on the landlord

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Consider rental income before filing tax returns

I saw an advertisement issued by the Department of Income Tax that tax @ 5% must be deducted if rent exceeds Rs 50,000 per month. In my case, my two flats located at different suburbs in Mumbai fetch Rs 22,000 and Rs 35,000 per month, totaling to Rs 57,000 per month. May I know where do I stand vis TDS @ 5%. Who has to deduct tax at source? The licensees or owner?
-V N Vasudevan

The liability to deduct tax at source is on the licensee and not on the landlord. Hence it is something that your licensee has to worry about and not yourselves. In any case, since neither of the two licensee are paying rent exceeding Rs 50,000 per month, they are also not required to deduct any tax at source under the newly-introduced provision. Also, since you are a senior citizen and have no income from business, you are not required to pay advance tax during the year. Please make sure you take the rental income into account while filing your income tax return and pay the tax, if any, on the amount of taxable income including the rent from the two premises.

I had purchased ICICI prudential LifeTime Super Pension policy in Jul 2007, and had paid initial three years of premium of Rs 3 lakh each, so principal invested is 9 lakh. Life Sum assured is zero. This policy got matured on July 6, 2017, and its fund value is not Rs 22 lakh. I am a non-resident Indian (NRI), currently living in Singapore. For some reasons, I believed that on maturity the fund value will not be taxable. however the ICICI Prduential's customer service officer is saying that if I withdraw the entire fund value as per income tax section 10, 10 (D) they will need to deduct tax deducted at source (TDS) at 30% (since I am an NRI customer) because the rules to deduct TDS for life insurance policies with "pension" element changed just two years back i.e. from 2015 onwards, Is this true?

The options suggested to me at this point are: Withdraw Rs 9 lakh as there is no TDS on principal amount and remaining Rs 13 lakh to be invested in tax free bonds (with a five-year lock-in period). In this case, there will not by any TDS for Rs 13 lakh part also; withdraw the full amount i.e. Rs 22 lakh, however, they will deduct TDS of 30% on Rs 13 lakh; withdraw one-third of the fund value as tax free, and for the two-third amount, buy annuity. After reading about annuity on Economic Times/Times of India, I believe opting for annuity is not a suitable option.

If I invest Rs 13 lakh in tax-free bonds (with a five-year year lock-in period), what will be the tax liabilities on the principal amount when I sell the bond after the lock-in period (as everywhere it says interest earned is tax free) gets over? Please note that I do not have any income in India. Please advise which option would be better, and whether it is true that under section 10, 10 D of income tax, the issuer is supposed to deduct a tax of 30% on the profits on life insurance policies having pension word. He says if pension word was not there then they would not have deducted TDS.
-Ram Agarwal

Your situation clearly demonstrates the pitfalls of buying a “pension policy” from an Insurance company (which makes no sense whatsoever). This invariably involves a mis-sale. In your case you are being subjected to a mis-sale even at the time of maturity of the policy. My first advice to you would be to ask the concerned sales person to send you the various options available to you in writing rather than depending on verbal assurances. You may discover when you insist on getting the options in writing some of the options given above may not actually be available.

With this background, you have the below options:

Option 1: Surrender the full policy for Rs 22 lakh – In such a case, the insurance company is right in saying that it will deduct 30% TDS on Rs 13 lakh (Rs 22 lakh less Rs 9 lakh premium cost). The TDS will be Rs 3.90 lakh. But, you can always file your tax returns in India. The tax treatment of a pension policy on maturity/surrender is far from clear in cases where no tax deduction benefit has been claimed in respect of the premiums paid under such a policy. But, the worst-possible tax treatment would be to treat the additional income (Rs 22 lakh minus Rs 9 lakh) as your income from other sources. Tax returns and since you have no income in India at all even if the entire income of Rs 13 lakh is treated as income from other sources the tax payable will come to around Rs 2.10 lakh only and you should be able to claim a refund of the excess TDS. You should be able to get the net of TDS surrender value (around Rs 18 lakh) remitted back to Singapore immediately after fulfilling the necessary formalities as well as the TDS refund as and when received back from the department. If you wish to keep the money in India and invest, you need not have to go through the remittance formalities.

Option 2: Withdraw one-third (roughly Rs 7 lakh) tax free under section 10(10A) (iii) of the Income Tax Act. This can be remitted back to Singapore after fulfilling the necessary formalities. The balance amount (roughly Rs 15 lakh) can be used to buy an annuity from the same insurance company which will roughly be around Rs 1 lakh per annum for the rest of your life with return of Rs 15 lakh after death. The annuity will be taxable and hence the insurance company will be forced to deduct 30% TDS against every payment. You will need to file a return in India every year to claim the refund of the TDS. You will need to fulfil the remittance formalities twice every year – once when you get the annuity as well as once when you get the tax refund. If you wish to keep the money in India and invest then you need not have to go through the remittance formalities.

Option 3: The third option that sales person is providing you seems to be a mis-sale. Please ask them to provide the details of this option in writing and you may discover that this option is not really available.

Please seek professional help in dealing with the tax and remittance implications of this transaction.

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