80C deduction

This query is : Resolved

Moothedath (Querist)
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06 August 2010 Can interest paid as late fee for delay in payments of lic premiums allowable as deduction in view of section 80C(2)(i)of the Income Tax Act,1961

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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06 August 2010 NO.

VINOD ARORA

VINOD ARORA (Expert)
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06 August 2010 Agreed, No.

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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06 August 2010 NO

CA Ujjaval Desai

CA Ujjaval Desai (Expert)
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06 August 2010 Not allowable deduction

CA. Pradeep Nayak

CA. Pradeep Nayak (Expert)
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06 August 2010 I would like to differ with the experts. Sec 80C(2)(i) says "to effect or to keep in force an insurance on the life of persons specified in sub-section (4)"

As such, the deduction cannot be restricted only to premium and shall be allowed on any amount paid to keep such policy in force. Any interest/late fee is invariably paid to keep an policy in force which would otherwise get lapsed.

Hence deduction is available for late fee also.

VINOD ARORA

VINOD ARORA (Expert)
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06 August 2010 As per my understanding, "to effect (means procuring insurance by paying first premium) or to keep in force an insurance(means payment of renewal premium) ..." does not relate to penalty for late payment. Its a finance charge or penalty and not the premium. Therefore, it may be appropriate to avoid availing such marginal deduction.

CA. Pradeep Nayak

CA. Pradeep Nayak (Expert)
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07 August 2010 Sec 80C doesnot use the word 'premium'. It says "to effect or to keep in force an insurance on the life of persons". As such, the intention of the law is not to restrict the deduction only for premium.

The interest on late payment is incurred to keep the policy in force,if you do not pay the interest the premium would not be accepted. In case of late payment, both 'premium + interest' are pre-requisites to keep the keep the policy in force, hence both shall be allowed as a deduction.

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