Income tax: tax deductions can be canceled

Most individuals invest in various tax saving programs and claim a tax deduction to reduce the overall tax payment. Although the Union Budget 2020-21 introduced a new tax regime which offers preferential rates with seven brackets without any tax exemptions, the old tax regime is still popular due to the various exemptions. However, these tax exemptions can be canceled if the conditions for these investments are not met. Investors should avoid closing these investments before the specified period, otherwise all deductions claimed at the time of the investment will be reversed and the amount will be taxable.

Surrender of a life insurance policy

A taxpayer obtains a tax deduction under Section 80C of the Income Tax Act for the payment of life insurance premium subject to certain conditions. However, if the policy is surrendered within two years, deductions claimed in previous years would become taxable in the year of policy termination. In addition, the insurer will debit the full amount of the premium if it is interrupted after one year. In the event of surrender after the second and third year, only 30% of the total premium will be refunded.

Repayment of the capital of a mortgage

An individual can claim tax exemption of up to Rs 2 lakh under Section 24B on interest paid for a home loan and up to Rs 1.5 lakh on repayment of principal under Section 80C during of an exercise. However, if he sells the house within five years of the end of the tax year in which possession of the property is obtained, the tax deduction for repayment of the principal of the house claimed in previous years will be taxable. the year of the sale. The deduction for the payment of interest on the housing loan will not be abolished. The capital gain on the sale will also be taxed.

Senior savings

For a steady cash flow after retirement, many invest in the Senior Citizens’ Savings Scheme (SCSS) in the form of capital for five years. The principal amount deposited in the SCSS is eligible for a tax deduction under Section 80C. However, if it is withdrawn before five years, the deductions claimed will be reversed and will be treated as income for the following reporting year. In addition, a penalty will be applied in the event of premature withdrawal.

Withdraw money at the ETH

Most employees contribute to the employee provident fund to build up their retirement capital. An employee contributes 12% of his base and his DA to the EPF account and the employer also pays an equal contribution. The amount deposited is eligible for a tax deduction under Section 80C and interest earned is tax exempt. Since the EPF is intended for long-term savings, if the subscriber withdraws money before having completed five years of continuous service, then the deduction claimed at the time of making the contribution will be withdrawn and he will have to pay the tax on the full amount in the year of withdrawal. Even the employer’s contribution and the interest earned will be taxable. However, if the service is terminated due to an employee’s poor health or the closure of the business, the employee will not have to pay tax.

ELSS and Ulips

Investments in equity savings plans (ELSS) of mutual funds and unit-linked insurance plans (Ulips) of life insurance companies are eligible for tax benefits under Section 80C . While ELSS plans have a three-year lock-in period, Ulips have a five-year lock-in period. If funds are withdrawn during the hold period, any tax deductions claimed will be reversed.


* If you surrender your life insurance policy within two years, the deductions claimed from the premiums paid are taxable

* If the house bought with a loan is sold within five years, then tax deduction on the principal

refund is canceled

* When EPF, SCSS or Ulip closes within five years or ELSS within three years, tax deductions are canceled

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