Different rules apply in different savings schemes, insurance, equity or mutual funds for the nominee or legal heir on the death of the investor.
Rules for Nominee in SCSS, PPF, NSC, Insurance, Equity and MF Schemes: Many people invest or take insurance cover to ensure a better future or to maintain a good lifestyle after retirement. Many times, when the earning member of the family dies, other members of the household have to face financial challenges. To deal with such situations, people also invest or opt for insurance cover, so that the dreams of other family members are not ruined. There are a variety of investment options available in the market, ranging from insurance to risk-free returns such as bonds, FDs and other small savings instruments. At the same time, there are many such options (eg- equity, equity oriented mutual funds) through which higher returns can be achieved in the long term.
However, in case of the death of the investor, the deposit amount is transferred to the nominee or legal heir. In this way, other family members can take the help of this investment to overcome financial problems. The process of such transfer is called transmission. Different rules apply to different instruments with respect to the rate of return or survival benefit payable during the time interval between the date of death of an investor and the time the death is reported or the death claim is made. Here’s a breakdown of the rules applicable to different financial instruments by Rajesh Girotra, Partner, RG Capital.
Senior Citizen Saving Scheme (SCSS)
Special interest applicable on Post Office Senior Citizen Saving Scheme (SCSS) is payable only till the date of death of the investor. Thereafter, only the savings interest rate is payable till the amount is transferred to the nominee or legal heir. If some additional payment is made at the savings interest rate after the death of the investor, then the additional amount is recovered from the principal amount.
life insurance
Payment on all life insurance policies with income, interest payment option is stopped from the date of death of the life insured. If any payment is made after the death of the Life Assured till the death is reported/death claimed, the excess amount is recovered from the principal amount.
National Saving Certificate (NSC)
If a National Savings Certificate (NSC) is forfeited prematurely, the savings bank interest is paid instead of the higher interest payable on the NSC. To avoid this, the nominee can wait till maturity to make a claim. However, a better option for the nominee is to transfer the NSC in his name and redeem the certificate on the maturity date. In this case the interest rate payable on NSC remains the same.
Public Provident Fund (PPF)
The same interest rate payable on PPF is paid till the nominee applies for redemption. If the redemption is effected on the 15th of the month, the interest due is paid by the end of the previous month. In case of PPF, the same interest rate is payable to the nominee/legal heir till the money is transferred.
Equity, Equity Oriented MF Schemes
There is no fixed interest rate or bonus rate applicable on capital instruments like equity and MF schemes. In this only the number of shares/units of MF schemes is transferred to the nominee/legal heir. Once the units are transferred, beneficiaries can redeem the investment as per their convenience. The profit or loss on investment depends on the market conditions on the day of redemption.
tax provision
Long Term Capital Gains (LTCG) tax or Short Term Capital Gains (STCG) tax will be levied at the time of taking payment of equity shares or units of mutual fund, which is decided on the original date of investment when the deceased made the payment. had invested. For this, the date of transfer of shares or mutual fund units in the name of nominee or legal heir is not considered as basis. There is no change in the tax rules applicable to the income earned from the transfer of fixed income assets like FDs or bonds in the name of the nominee. The same rules apply, which were applicable before the death of the deceased.
(Article: Amitava Chakrabarty)
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