Commuted pension is exempt from tax

Do I need to fill Schedule HP even when there is no income or loss to be reported from my house property? While filling Schedule HP in ITR-3, I get the following error: ‘Ownership of house is selected as co-owned house property, but assessee’s share and co-owner(s)’ share is not equal to 100%. Kindly verify the co-ownership details and make sure the co-owner’s share and your share is equal to 100%’. I have only entered property details and the co-owners’ details along with share percentage. The income, interest, however, are nil.

—Arun

 

We have presumed that this property is located in India. As per instructions issued for filing Form ITR-3 for FY 2020-21, the details of each property owned or co-owned by you during the year is required to be reported in Schedule HP under the head ‘house property’.

Where the property is co-owned, your ownership percentage and the name, PAN and respective ownership percentage of all other co-owners are required to be reported. The total of the ownership percentages of all co-owners (including yours) should be 100%. Accordingly, in relation to the error faced by you, kindly ensure you fill the Schedule HP with all the above mentioned details and ensure that the total of all ownership percentage equals 100%.

 

I had initiated a life stage pension policy with ICICI Prudential Insurance Company in 2008 by paying 1 lakh premium for 10 years. The policy matured in 2018 but I did not vest the fund value then because of my uncertainty about the tax implications. According to the terms of the policy document, I can get 1/3rd of the fund value tax-free in my funds and the rest have to be invested in an annuity policy, which delivers low returns now. What is the tax implication if I vest the entire fund value in cash in my hands now? If there are any tax liabilities, will only the fund appreciation over and above my 10 lakh contribution with indexation be taxable? How much tax is to be levied?

—R.K. Bhattacharya

 

We assume from the facts provided that the life stage pension policy held by you with ICICI Prudential Insurance Company is in the nature of a private pension policy and not a life insurance policy. We have assumed that the fund set up by ICICI Prudential Insurance Company is under a pension scheme approved by the Insurance Regulatory and Development Authority of India (Irdai) for the purpose of receiving pension.

As per the provisions of the income tax law, any payment received in commutation of pension received from an approved fund (not under a scheme of the employer) is fully exempt from tax.

Accordingly, if you propose to commute the entire fund value in cash now, the entire sum received by you should be exempt from tax in your hands. However, this is subject to permissibility of such higher commutation under the policy terms.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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