Commuted pension under section 10(10A)

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166823 Points)
Replied 10 June 2024

Tax benefits under the policy are subject to conditions under Section 80CCC, 10(10A) and other provisions of the Income Tax Act, 1961. Refer policy document for actual tax benefit.

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sabyasachi mukherjee (27117 Points)
Replied 12 June 2024

Commuted pension under section 10(10A)

Shamal Parab (13 Points)
Replied 14 June 2024

As per the Policy document, it is a "regular unit linked deferred pension fund. On vesting the accumulated fund value will be used for purchase of annuity with an option to commute up to one third of the value or any other proportion as per prevailing tax laws". What I described earlier is prevailing tax laws. Why we cannot categorise this fund under Section 10 (10A) (iii) and consider entire commutation as tax free?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166823 Points)
Replied 14 June 2024

Unit linked pension plans are categorized under sec 10(10A)(ii),; so if you purchase annuity of minimum 2/3 of the balance amount; it will not be taxed; otherwise only 1/3 amount will be tax-exempt.

Shamal Parab (13 Points)
Replied 16 June 2024

Section 10(10A) (ii) is for the pension schemes of Corporate companies other than Govt entities mentioned under (i). Isn't this applicable to retired employees and not the individuals participating in the private pension funds. That is the reason why there is category (iii). Also, subsection (ii) has two sub clauses where employee claims gratuity can claim 1/3 rd commuted value and employees not claiming gratuity can claim 1/2 of fund value.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166823 Points)
Replied 16 June 2024

Can you prove that the stated fund was set up under sec. 10(23AAB)? Any documentary evidence from the POLICY Document, that the benefit will be available to contributor?

Actually,

Exemption under Section 10 (23AAB) on income earned on a pension fund established by an insurance company If a fund is set up by LIC or any other insurance company under a pension scheme, income earned by such fund would be exempted from tax. To claim exemption, however, the following conditions should be fulfilled
- The fund should have been created on or after 1st August 1996
- Contribution to the fund should be made by a policyholder for the purpose of receiving pension
- The fund should be approved by the Controller of Insurance or by the Insurance Regulatory and Development Authority of India (IRDAI) which has been set up under Section 3(1) of the Insurance Regulatory and Development Authority Act, 1999.

If the section was applicable over contributor, then why NPS has to declare that only 60% of the corpus is tax exempt, while remaining 40% would be taxable unless annuity purchased?

Shamal Parab (13 Points)
Replied 18 June 2024

This fund is approved by IRDAI and has allocated a unique number for approval. It is mentioned in the policy. Regarding applicability of Section 10 (23AAB), I have requested the Insurance company to confirm whether they have obtained exemption of income under this section. I doubt whether they will reply to this question. As far as NPS is concerned, it is run by the Finance Ministry of the Government and not any private Insurance company. Section 10 (12A) applies to NPS Trust partial withdrawal or commutation. Please let me know your thoughts.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166823 Points)
Replied 18 June 2024

They will surely reply that the section is applicable to the scheme, but that is exemption available to fund house and not to the policy holders.

Shamal Parab (13 Points)
Replied 18 June 2024

So going back to my original question whether any commuted amount fully exempt under section 10 10A (iii) from a pension fund set up under section 10 (23AAB). Section 10(10A) (iii) applies to the policy holder or contributor in a pension fund which has reference to section 10(23AAB).

Section 80CCC states that the surrender amount or annuity received from pension fund is taxable. It does not mention anything amount commutation or commuted value of pension fund.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166823 Points)
Replied 18 June 2024

The taxability of the scheme is already given in the policy document. You are adding an extra clause/section which is not eligible to policy holder but to the insurer.

Shamal Parab (13 Points)
Replied 19 June 2024

As I mentioned earlier, the policy document states that one third of fund value commuted is tax free or as per the Income tax law prevailing at the time of vesting date or maturity date. I am looking at the Income Tax prevailing now under section 10 10A. This section talks about commuted value exemption from pension fund which is not applicable to the Insurer but to the policy holder. This is my view.