Weekend QA: Tax Benefits For Salaried Persons On Personal Loan

I had bought some life insurance policies and also had made some investments in NSC, PPF and equity mutual funds when I was in India. Are the maturity proceeds of these products taxable? My relative in India tells me that only the life insurance policy maturity proceeds are tax-free. What about the taxation of NSC, PPF, and MF maturity proceeds?

There is no difference in the taxability of these instruments in the hands of NRIs vis-a-vis a resident taxpayer. The maturity proceeds of a life insurance policy are fully exempt under Section 10(10d) if the annual premium paid during the premium-paying term does not exceed 10 per cent of the sum assured. However, this exemption under Section 10(10D) is not available for ULIP policies issued on or after 1st February 2021 if the aggregate premium payable for such policies for a year exceeds Rs. 2.50 lakhs. Likewise, for non-ULIP policies, the exemption is not available for policies issued on or after 1st April 2023 if the aggregate premium payable for these policies in a year exceeds Rs. 5 lakhs in a year. Please note that death claims are fully exempt under all circumstances.

PPF maturity proceeds are fully tax-free. Note that as an NRI, you can continue your PPF account for the running term but cannot extend it beyond its term. Interest on NSC is taxable and can be offered for tax either on an accrual basis or on a receipt basis as opted and consistently followed by the taxpayer. The profits on equity mutual funds are taxed at a flat rate of 12.50 per cent beyond the initial exemption of Rs. 1.25 lakhs in a year if held for more than 12 months without indexation. Such profits for holding of less than 12 months are taxed at flat 20 per cent.

I am a salaried person and I have taken a personal loan. Can I claim tax benefits for my personal loan?

For a salaried person, there is no tax benefit available on the interest paid for a personal loan taken for personal use. However, if the loan was taken for the purchase, construction, repairs, etc., of your house and you can establish this, you can claim the interest paid in respect of such loan under Section 24(b). No tax benefit is available for repayment of personal loan even if the same has been used for the above-stated purposes.

The deduction for interest under 24(b) is not available under the new tax regime for self-occupied property. For let-out property, the deduction is restricted to the amount of taxable rent received during the year under the new tax regime. Under the old tax regime, you can claim interest under Section 24(b) for self-occupied property up to Rs. 2 lakhs in a year whereas for let-out property full interest is deductible. However, under the old tax regime loss under the house property head can be adjusted against other income to the extent of two lakh rupees in a year and the unabsorbed loss is allowed to be carried forward for set off against house property income in eight subsequent years.

I have incurred a loss on equity derivative trading. Can this loss be adjusted against short-term equity capital gains, short/long-term debt capital gains or gains from global gold mutual funds?

Derivative transactions are not treated as speculative business transactions. The loss from such transactions can be treated as business loss. Under the provisions of income tax laws business loss can be set off against income from other sources except from the head Salaries. So you can set off your loss on derivative transactions against capital gains of any nature.

Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant his X handle.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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