Most people put money into numerous tax-saving schemes and declare tax deduction to scale back the general tax payout. Though the Union Budget 2020-21 launched a brand new tax regime which presents concessional charges with seven slabs with none tax exemptions, the outdated tax regime stays well-liked because of the numerous exemptions. However, these tax exemptions could be reversed if the phrases and circumstances for such investments usually are not met. Investors should keep away from closing these investments earlier than the required time interval or else all of the deductions claimed on the time of investing can be reversed and the quantity can be taxable.
Surrendering life insurance coverage coverage
A taxpayer will get tax deduction beneath Section 80C of the Income Tax Act for paying life insurance coverage coverage premium topic to sure circumstances. However, if the coverage is surrendered inside two years, then the deductions claimed in earlier years would grow to be taxable within the 12 months by which the coverage is discontinued. Moreover, the insurer will deduct the complete quantity of the premium whether it is discontinued after one 12 months. If one surrenders after the second and third 12 months, then solely 30% of the whole premium can be paid again.
Home mortgage principal compensation
An particular person can declare tax exemption of as much as Rs 2 lakh beneath Section 24B on the curiosity paid for a house mortgage and as much as Rs 1.5 lakh on the principal compensation beneath Section 80C in a monetary 12 months. However, if he sells the home inside 5 years from the tip of the tax 12 months by which possession of the property is obtained, then tax deduction for principal compensation of the home claimed in earlier years can be taxable within the 12 months of sale. The deduction for curiosity fee on the housing mortgage won’t be withdrawn. The capital acquire on the sale will even be taxed.
Senior Citizens Savings Scheme
For a daily money circulate after retirement, many put money into the Senior Citizen Savings Scheme (SCSS) as a lumpsum for 5 years. The principal quantity deposited in SCSS is eligible for tax deduction beneath Section 80C. However, whether it is withdrawn earlier than 5 years, then the deductions claimed can be reversed and can be handled as earnings for the subsequent tax submitting 12 months. Moreover, a penalty can be levied for untimely withdrawal.
Withdrawing cash from EPF
Most salaried individuals subscribe to Employees’ Provident Fund to construct their retirement corpus. An worker contributes 12 % of his primary and DA to the EPF account and the employer additionally makes an equal contribution. The quantity deposited is eligible for tax deduction beneath Section 80C and the curiosity earned is tax-free. As EPF is for long-term financial savings, if the subscriber withdraws cash earlier than finishing 5 years of steady service, then the deduction claimed on the time of creating the contribution can be withdrawn and he should pay tax on the whole quantity within the 12 months of the withdrawal. Even the employer’s contribution and the curiosity earned can be taxable. However, in case the service is terminated due to an worker’s unwell well being or closure of the enterprise then the worker won’t should pay any tax.
ELSS and Ulips
Investments in equity-linked financial savings schemes (ELSS) of mutual funds and unit-linked insurance policy (Ulips) of life insurance coverage corporations are eligible for tax advantages beneath Section 80C. While ELSS schemes have a lock-in interval of three years, Ulips have a lock-in for 5 years. If funds are withdrawn in the course of the lock-in interval, the tax deductions claimed will get reversed.
BENEFITS REVERSED
* If you give up your life insurance coverage coverage inside two years, deductions claimed on premiums paid are taxable
* If home purchased with mortgage is offered inside 5 years, then tax deduction on principal
compensation is reversed
* On closure of EPF, SCSS or Ulip inside 5 years or ELSS inside three years, tax deductions are reversed
Source: www.financialexpress.com”