Income tax implications on terminating ULIP, SCSS before minimum holding period1 min read . Updated: 21 Nov 2020, 12:12 PM IST
If any of the aforesaid investments, subscriptions, etc., is terminated or sold before the minimum holding period specified above, then the deduction allowed in earlier years would be taken as income of the previous year of termination, sale.
Section 80C provides deduction in respect of various items like life insurance premium, investment in Public Provident Fund (PPF), investment in NSC, repayment of principal component of housing loan, investment in Post Office Time Deposit Scheme, Senior Citizens Saving Scheme (SCSS) etc. The maximum deduction that can be claimed under Section 80C (along with deduction u/s 80CCC & 80CCD) is ₹1.50 lakh. There are certain cases in which the income tax deduction claimed under Section 80C has to be given up by paying tax on the income claimed as deduction earlier.
If you fail to hold ULIP, SCSS or post office time deposit, and is terminated or sold before the minimum holding period, then the deduction allowed in earlier years would be taken as income of the previous year of termination, sale.
Minimum holding period in respect of ULIP is five years, for life insurance policy is two years, and five years for Senior Citizens Saving Scheme (SCSS) and Post Office Time Deposit.
Further, you cannot claim any deduction in respect of contribution, payment, etc., made towards such policy, units, which were terminated during that year.
In case of withdrawal during the life time of depositor from Senior Citizens Savings Scheme or Post Office Time Deposit before the aforesaid period (i.e., before 5 years), the amount received on such withdrawal (excluding interest which is already taxed in earlier years) will be charged to tax in the year of withdrawal.