Regarding SFT-005 in my 26as

Dear Dr. Narasimhaiah,

Thank you for your detailed query. You’ve raised two important issues — one regarding SFT-005 (Time Deposit reporting) in Form 26AS, and the second regarding maturity proceeds from an old LIC international policyreceived in foreign currency. Let me address each one clearly and practically.

1. SFT-005 in Form 26AS: Should You Take Any Action?

What is SFT-005?

• SFT-005 stands for "Time deposit" under the Statement of Financial Transactions.

• It appears in your Form 26AS when you've made time deposits aggregating to ₹10 lakh or more in a financial year (excluding renewals) across all bank branches of a bank/cooperative bank/post office.

Should you worry?

• No immediate action is needed just because SFT-005 appears.

• However, this is an indication that your high-value financial transaction has been reported to the Income Tax Department.

• You should ensure that the source of the funds used for such deposits is properly reflected in your income or capital, and that your return includes the interest income, if any, earned from these deposits.

What to do while filing your ITR:

• Disclose the interest income from the time deposit in your “Income from Other Sources.”

• If the deposit was made from already taxed income or exempt income (like from RFC account or NRE account), you can simply mention the source if ever asked.

✅ No special action needed just for SFT-005. Just file your ITR accurately.

2. Maturity of International LIC Policy – Taxation Implications

Background:

• You purchased an LIC international policy abroad (before returning to India in 2006).

• Premiums were less than 20% of the sum assured.

• The policy matured in 2020, and the maturity proceeds were received in USD, and parked in your RFC (Resident Foreign Currency) account.

Tax Implications:

Here’s a breakdown:

✅ Exemption under Section 10(10D):

• Maturity proceeds from a life insurance policy are exempt under Section 10(10D) if:

  • The premium paid does not exceed 20% of the sum assured (which is your case),

  • And the policy is not a Keyman Insurance Policy or ULIP subject to new taxation rules.

📌 Conclusion: The maturity proceeds would generally be exempt from tax in your case.

💱 Foreign Currency Receipt:

• Since the money was received in foreign currency, and deposited in an RFC account, there's no separate tax on the remittance or conversion itself.

• Interest earned on RFC account is taxable, unless you become a Resident but Not Ordinarily Resident (RNOR) — which is not the case here since you returned in 2006.

Which ITR Form Should You Use?

As a government employee (central government) with income from salary, interest, and exempt insurance proceeds:

• Use ITR-1 (Sahaj) if:

  • Your total income is up to ₹50 lakhs,

  • You have income from salary/pension, one house property, and other sources (like interest).

• Use ITR-2 if:

  • Your total income exceeds ₹50 lakhs,

  • You have foreign assets or foreign income, or

  • You want to declare exempt income like life insurance maturity (though ITR-1 also allows this under "Exempt Income").

✅ ITR-1 is sufficient in most cases unless you have foreign assets to report.

✅ Summary of What You Should Do:

Let me know if you'd like help filling your ITR or checking your RFC interest calculations.