Hurdles in incentive benefits u/s 80CCC/80D

QUESTION: Myself and some of my colleagues numbering around 30 are facing some difficulties on the deductions and rebate to be claimed under Sections 80CCC, 80D and 88 of the Income-tax Act and we require some clarifications.

80CCC: Contributions paid for any annual plan of the LIC for receiving pension (Jeevan Suraksha) is entitled for deduction up to Rs. 10,000. A wording has been put as 'when 80CCC is availed of, rebate under Sec. 88 is not available for the same amount'. In such case, if we pay premiums under Jeevan Suraksha policies, we are eligible to claim deduction up to Rs. 10,000 under Sec. 80CCC and the balance premium paid under the above policy can be claimed as rebate under Sec. 88. Our internal auditors have also advised us to claim on the above basis.

But the Income-tax Officer at Tuticorin is allowing deduction of Rs. 10,000 only under Sec. 80CCC, but he disallows the balance premium paid and claimed as rebate under Sec. 88. It is also very difficult to pay exactly Rs. 10,000 as premium as majority of us pay premium up to Rs. 15,000.

80D: Mediclaim policy: Premium paid as per the scheme by cheque for insurance on the health of the employee/assessee, his spouse and children is eligible for deduction up to Rs. 10,000 up to March 31, 2000 and Rs. 15,000 from April 1, 2000.

We have covered Mediclaim policy for self, spouse, children with New India Assurance Co. Ltd., Bangalore. Majority of us are Cancard holders with Canara Bank, who are having some arrangements with the New India to cover Mediclaim Insurance with some lesser premiums. The insurance company has mentioned in the policy that the premium has been collected through credit card. When we contacted the insurance company for necessary clarifications, they had informed us that payment through credit card is only to confirm that the debit in the card has been credited to the account by way of cheque only and certainly is eligible for deduction under Sec. 80D.

Now we seek clarifications on the above through your column to satisfy the Income-tax Department whether-

(1) Premiums paid under Jeevan Suraksha over and above Rs. 10,000 can be claimed as rebate under Sec. 88 and

(2) Premium paid on Mediclaim policy through credit card can be claimed as deduction under Sec. 80D.

ANSWER: As regards subscription to the annual contribution to the Jeevan Suraksha policies approved under Sec. 80CCC, it has a ceiling of Rs. 10,000. Where the contribution is more than Rs. 10,000, the reader would like to have such excess allowed under Sec. 88, so that he can get deduction up to Rs. 10,000 and tax rebate at 20 per cent for the balance. The reasoning is not an unreasonable one. The mandate in sub-section (3) reads as under:

``(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a rebate with reference to such amount shall not be allowed under Sec. 88."

The issue for consideration is whether the bar against tax rebate under Sec. 88 applies to the policy itself or actual amount paid for which deduction is availed under Sec. 80CCC. The plain meaning would appear to justify a more liberal inference, since what is barred is only a double benefit of the same amount as deduction under Sec. 80CCC and tax rebate under Sec. 88. But then the Income-tax Officer's understanding that the subscription cannot have the benefit of both 80CCC and 88 and that splitting up is not what is contemplated under sub-section (3) can only be settled by a clarification from the Central Board of Direct Taxes. The only existing departmental circular on the subject No. 762 dated February 18, 1988 does not throw any light on this matter. Probably Life Insurance Corporation itself should take up the matter for clarification from the Board, so that the taxpayers may not be put to any hardship. Settlement of such disputes in normal course through the grievance procedure is time-consuming and has practically lost its utility for the average taxpayer because of the enormous delay in resolving disputes.

Reference to such amount under Sec. 80CCC (3) can be understood as the amount for which deduction is availed and what is barred is not the policy itself. Policy under Sec. 80CCC is one which is in the nature of personal family pension, making provision for payment for life time in the event of death of the contributor during the contribution period. As it is, the policy has been made less attractive by making the payments to the assessee during his life time and to his widow after his death, taxable.

While taxability of recurring payment as pension is understandable, even lumpsum to which subscriber is entitled after the contribution period becomes taxable. Amount received on account of surrender of the annuity plan, whether in whole or in part becomes taxable to the extent that it consists of the contribution allowed as deduction. Hence tax angle to the scheme has to be rationalised, if the incentive meant for the scheme has to achieve the purpose for which the scheme was initially framed.

As for Mediclaim policy under Sec. 80B, it provides that the sum should be paid `by cheque'. The object of this requirement could only be that the payment by cheque itself offers evidence of payment. Such insistence of payment by cheque is a later innovation on the part of the tax administration as in respect of payment of welfare dues to be eligible for deduction under Sec. 43B.

Where the payment is made by credit card, it should be even better evidence than even payment by cheque as there is a third party, besides the account holder and the bank in the credit agency. Where the credit card account is settled by cheque, there is literal compliance with the requirement of the section. Probably in the case of the reader and his colleagues since credit card is one with bank where they have accounts, the amount is debited to their accounts. This should satisfy the requirement. Again the clarification by the insurance company itself that the payment through credit card is only confirmation of payment by cheque indicates that the payment reached the insurance company through the medium of a cheque.

Hence, there should not be any disallowance on any technical ground. If the assessing officer feels helpless because of the language of law, it is for the tax administration to come to the help of the taxpayers and not await the outcome of the litigation by permitting the authorities below to take such pedantic and narrow ultra-technical view in disregard of the purpose of the section by issuing clarification to treat payment through credit card as payment by cheque.

NRI's problems after return to India

Q: I had remitted during my stay abroad moneys in foreign currency to India. I was given the impression by my friends that in view of my past stay abroad for more than four years I would not be liable for any tax. I will be grateful, if advice is given to me in this regard.

A: Advice given to the reader is absolutely wrong. It is true that certain exemptions are available in respect of some income as interest from the Resident Foreign Current Account under Sec. 10(15)(iv)(fa) as long as the taxpayer is a resident but not ordinarily resident. If however the amount in NRE account and FCNR account has not been converted to Resident Foreign Currency Account, it would be treated as NRO account on permanent return to India, and would be liable to tax from the date of arrival.

If the moneys had been kept in non-resident non-repatriable rupee deposit (NRNRRD) account, it becomes taxable on cessation of non- resident status under income-tax law, since exemption is available only to non-residents under Notification No. 653(E) dated August 31, 1992 read with Sec. 10(15)(i) of the Act. If such deposit either in NR(E) or NRNRRD account is continued as fixed deposits in bank, it may be eligible for lower rate of tax at 20 per cent at the option of the holder under Sec. 115H following the decision of the Authority for Advance Ruling in Hari Gopal Chopra v CIT (1999) 237 ITR 135 (AAR).

It is possible that the reader has other Indian income. Since the reader is bound to have saved considerable amount of money because of his long stay abroad, it is likely that he may have significant tax liability probably even during his absence in India, if he had not taken care to avail the investments as under Non-Resident (External) Account or NRNRRD Account, which are tax free at the relevant time. Income from NRO account is taxable even when he was a non-resident. Income-tax liability is a serious matter for which he should seek professional advice rather than advice from friends and newspaper clarifications. Such casual approach may land the reader on avoidable liability for interest and penalty.

Senior citizens are not exempt from filing taxable returns

Q: I am a senior citizen getting pension and other income total exceeding Rs. 50,000 per annum but with no tax liability.

So I applied for PAN in March 2000 (which has not yet been received) and also filed very first ever tax return for the assessment year 1999-2000, which was incidentally a nil tax return. In the Tax Forum in The Hindu dated July 13, 2000 also it was stated that even senior citizens with no tax liability are bound to voluntarily file returns, if their income exceeds Rs. 50,000 per annum.

But quite contrary to the above, it was categorically stated in the tax column of Eenadu dated August 6, 2000 that senior citizens whose tax liability is nil after availing rebate under Sec. 88B need not file the return. Is there any such exceptions for senior citizens? If so, I think I may discontinue filing of nil tax returns especially as there is no prospect of any income increasing to such an extent as to make me liable to pay tax in future. Have I to inform anything to the Tax Department in this regard?

A: Sec. 139(1) requires every person with taxable income to file the return. No exception is made for persons without liability because of tax rebates or tax deduction at source. One by six rule requiring return is applicable for those whose income is below the taxable limit (Rs. 50,000). Senior citizens are exempted from filing the return under one by six rule in certain contingencies as to occupation of minimum space and telephone, but that does not mean that if they have taxable income, they are not required to file the return.