ITAT rules insurance premiums not claimed under IT Act cannot be taxed

ITAT rules insurance premiums not claimed under IT Act cannot be taxed

The bench remitted the issue to the assessing officer for reconsideration

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the insurance premium not claimed as a deduction under the Income Tax Act,1961 cannot be taxed.

The matter was raised after the appellant challenged the order of the Commissioner of Income Tax (Appeals) for the assessment year 2017-2018.

In August 2017, the appellant, Kantilal Jain, filed his Income Tax Return (ITR) for the Assessment Year 2017-18. He declared a total income of Rs.16,13,080 after claiming deductions of Rs.1,60,000 under the IT Act.

The sum included income from salary, residential property and other sources that comprised an interest income of Rs.3,30,282, and income of Rs.4,78,000 from the maturity proceeds of the Life Insurance Company (LIC) policy. The total tax payable in the ITR amounted to Rs. 3,34,331, which was paid via the advance tax of Rs.32,000, Tax Deducted at Source (TDS) of Rs.1,21,659 and self-assessment tax of Rs.1,80,672.

The assessee took a life insurance policy for a period of 10 years in the financial year 2006-07. He paid half yearly premium of Rs.1,06,275 for 5 years totaling Rs.10,62,750, wherein the annual premium exceeded 10 percent of the sum assured.

According to the revenue department, the maturity proceeds were not exempted under the IT Act. It said the assessee offered an excess amount of Rs.62,750. Though Form No.26AS reflected Rs.17,74,288, he disclosed only Rs.8,08,282.

The assessee argued that he was only liable for the net amount issued from the maturity of the insurance policy at Rs.4,15,250. He contended that the CPC erred in taxing the entire amount of Rs.14,78,000. He further stated that the premium at Rs.10,62,750 was included in the maturity value, which could not be taxed.

The single-member bench comprising Chandra Poojari (accountant member) observed that the error occurred because the tax was deducted from the entire amount. This was noticed while increasing the TDS rate from 1 percent to 5 percent in the Financial Bill, 2019.

Partly allowing the appeal of the assessee, the tribunal stated that the contention of the assessee on the premium paid to the insurance company could not be taxed because he could not avail of the deduction under the IT Act on the premium paid towards the insurance policy.