IRDA suspends sale of Universal Life policies

The Insurance Regulatory and Development Authority (Irda) has suspended sale of universal life policies (ULPs), which were being promoted as an alternative to unit-linked insurance plans, from October 23.

Sales have been suspended until the final guidelines for ULPs are issued. Irda said it had received several complaints on the sale practices of the insurers regarding ULP. “After examining the complaints, the authority is satisfied that the universal life products need a better regulatory framework for protecting policyholders’ interests,” Irda said.

In a draft issued late evening, the regulator defined the Variable Insurance Product, widely known as universal life policies, as life insurance products that provide death and maturity benefits equivalent to the balance in the savings account.

Under this policy, the regulator has proposed to cap the expenses at 25 per cent in the first year and at 5 per cent from second year onwards. Insurance company sources said the commission to agents may also be capped below 5 per cent.

DRAFT PROPOSALS
* Expenses capped at 25% 1st year onwards, 5% from 2nd year
* Agent commission may fall below 5%
* Single premium products under ULPs to be banned
* Minimum policy term to be 5 years
* Lock-in of 3 years
* No top-up premium, riders allowed
* To follow investment norms under traditional policies

Moreover, single-premium products under ULPs will not be allowed.
Like unit-linked insurance plans, the minimum policy term will be five years, with a minimum life cover of 10 times for those below 45 years of age. Above 45, the life cover will be seven times. The lock-in under the draft is kept at three years. Also, insurers will not be allowed to collect top-up premium or offer riders with ULPs.

Insurance companies like Reliance Life and Max New York Life have launched these products as a combination of Ulips and traditional plans. Now, they have to follow the investment norms of traditional policies. Under this product, however, the policyholder will have the flexibility to change the policy term as well as the minimum sum assured.

Insurers will have to show the premium separately as risk premium, expense, commission and savings components.

Also, the draft has proposed that the policyholder will have 12 months to revive the policy from the date of first unpaid premium, while the life cover will cease.

Similarly, the benefit paid on death and maturity will be comparable to Ulips. The balance in the savings account will be paid at the time of maturity. On death, the sum assured chosen by the policyholder, along with the balance in the savings account will be paid.

Irda Chairman J Hari Narayan had said ULPs were the next focus area for the regulator as they wanted only fair products to be sold. Last week, insurance companies expressed their concern over capping of charges in ULPs, as agents did not push products with lower fees.

INTEREST ON DELAYED PAYMENT OF GRATUITY..says Madurai Bench of Madra HC...

An employee becomes eligible for gratuity on the termination of his employment after he has rendered continuous service for not less than five years, according to Section 4(1) of the Payment of Gratuity Act, 1972. He is also entitled for interest on the gratuity in terms of Section 7(3) and 7(3A).

Making these clear, the Madurai Bench of the Madras High Court directed the Arumuganeri Salt Workers Co-operative Production and Sale Society Ltd, Thoothukkudi district, to pay the amount to its worker, Mr A. Rajan, within 30 days from date of receipt of a copy of this order without further driving him to any other forum.

Mr Justice K. Chandru, hearing a writ petition from the Society challenging the order dated January 27, 2009 of the Appellate Authority under the Act, Madurai (R-2), directing it to make interest payment if gratuity was not paid within 30 days from the date of his order, noted that from the beginning, it was the stand of the petitioner Society that R-1 (Mr A. Rajan) was not eligible for gratuity. If Sections 7(3) and 7(3A) were read together, then there was no difficulty in understanding the eligibility for receiving interest.In the present case, the Appellate Authority had correctly construed the legal provisions and there was no case made out to interfere with the interpretation placed by the Authority. The petitioner contended that payment of interest would arise only when there was delayed payment, and in this case, there was no delay since they had paid gratuity as ordered by R-2, and hence the question of payment of interest would not arise.This Court was unable to accept the said statement, since the entire controversy was with regard to the legal provision. Reading Section 4(1) of the Act it would be clear that the date relevant for determination of interest was the date on which gratuity became payable, which in the present case was when R-1 resigned his job on 1-6-2003. When R-1 issued notice for payment of gratuity, petitioner employer did not honour the notice. On the contrary, it was only when R-1 instituted a claim before the Controlling Authority, the petitioner contended about the irregular nature of his employment and his alleged disqualification from receiving gratuity. In the light of these, the writ petition stood dismissed, the Judge held.

PAYMENT EXCEEDING 20000 40(A)3 EXCEPTIONS RULE 6DD

Section 40A(3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000/- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction.However if payment is being made for plying, hiring or leasing goods carriages then Limit for these section is Rs 35000/-,instead Of 20000/-
Section 40A(3)(b) also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft.
Section 40A(3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion.Person are splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day.Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book.According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction,the rigours of section 40A(3) will not apply.
To overcome the splitting of payments (AS GIVEN IN POINT NO 3)to the same person made during a day as referred above and to increase the efficacy of the provision, an amendment was made through Finance act 2008 and after 01.04.2008, where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A,as the case may be. EXAMPLE :To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.EXCEPTION TO ABOVE PROVISION:The provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.
Payment to Specified payee Rule 6DD(a)- Where the payment is made to

(i) Reserve Bank of India or any banking company as defined in section 5(c) of Banking Regulation Act, 1949;
(ii) State Bank of India or any subsidiary bank as defined in section 2 of SBI (Subsidiary Banks) Act, 1959;
(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949;
(v) Life Insurance Corporation of India.
Payment to Government Rule 6DD(b)- Where payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender.
Payment by certain modesRule 6DD(c) - Where the payment is made by
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any other bank;
(iv) a bill of exchange made payable only to a bank;
(v) the use of electronic clearing system through a bank account;
(vi) a credit card;
(vii) a debit card.
Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.
Adjustment in books Rule 6DD(d)- Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.
Purchase of certain productsRule 6DD(e):Where the payment is made for the purchase of -
(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including livestock, meat, hides and skins)***** or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products.
Cottage industry Rule 6DD(f)- Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products.
No bank service Rule 6DD(g) - Where the payment is made in a village or town, which on the date of such payment is not served by any bank,to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town.
Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.
Terminal benefit to employee - Rule 6DD(h) Where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed Rs. 50,000.
Temporary posting of employee - Rule 6DD(i) Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary as per section 192, and when such employee
(i) is temporarily posted for a continuous period of 15 days or more in a place other than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship.
Bank closed - Rule 6DD(j) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.
Payment to agent Rule 6DD(k)- Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.
Foreign currency Rule 6DD(l)- Where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Note: “Authorised dealer” or “money changer” means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force

Exemption from disallowance is not available
on payment for purchase of livestock, meat,hides and skins from a person who is not proved to be the producer of these goods and is only a trader, broker or any other middleman, by whatever name called [Circular No. 4/ 2006, dated 29-3-2006 (14 CAPJ 201)]
Any person, by whatever name called, who buys animals from the farmers, slaughters them and then sells the raw meat carcasses to the meat processing factories or to the traders/retail outlets is considered as producer of livestock and meat.
Exemption is available subject to furnishing of
(i) declaration from person receiving payment that he is a producer of meat;
(ii) confirmation that payment, otherwise than by account payee cheque/draft, was made on his insistence; and
(iii) a further confirmation from a veterinary doctor certifying that person specified in the certificate is a producer of meat and that slaughtering was done under his supervision [Circular No. 8/2006, dated 6-10-2006 (16 CAPJ 381)].

CLARIFICATION REGARDING THE MEANING OF THE EXPRESSION 'FISH OR FISH PRODUCTS' USED IN SUB-CLAUSE (iii) OF CLAUSE (f) OF RULE 6DD OF THE INCOME-TAX RULES, 1962
CIRCULAR NO. 10/2008, DATED 05-12-2008

Representations have been received from various quarters regarding problems being faced by the seafood exporters mainly on account of provisions of Section 40A (3) of the Income-tax Act, 1961.2. Disallowance of expenditure under the provisions of sub-section (3) of Section 40A of the I.T. Act, 1961 is made in the computation of income in a case where a payment or aggregate of payments exceeding twenty thousand rupees is made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft. However, payment otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft exceeding twenty thousand rupees does not attract the aforesaid disallowance in certain circumstances as prescribed under rule 6DD of the Income-tax Rules, 1962. Such exceptions, inter-alia, refer to payment made to the producer for the purchase of ‘fish or fish products' under sub-clause (iii) of clause (e) of rule 6DD. [Clause (f) of rule 6DD prior to coming into effect of the I.T. (Eighth Amendment) Rules, 2007 w.e.f. A.Y. 2008-09].3. The following clarifications are, therefore, being issued for proper implementation of rule 6DD of the Income-tax Rules, 1962:—(i) The expression ‘fish or fish products' used in rule 6DD(e)(iii) would include 'other marine products such as shrimp, prawn, cuttlefish, squid, crab, lobster etc.'.(ii) The 'producers' of ‘fish or fish products' for the purpose of rule 6DD(e) of I.T. Rules, 1962 would include, besides the fishermen, any headman of fishermen, who sorts the catch of fish brought by fishermen from the sea, at the sea shore itself and then sells the fish or fish products to traders, exporters etc.4. It is further clarified that the above exception will not be available on the payment for the purchase of fish or fish products from a person who is not proved to be a 'producer' of these goods and is only a trader, broker or any other middleman, by whatever name called.

Status of Challans in a TDS/TCS statement

What are the different statuses of a challan in the TDS/TCS statement?

The following are the various statuses of challans in a TDS/TCS statement:

Booked: Challan / transfer voucher detail in the statement matches with corresponding details received from banks / PAO.

Match Pending: Corresponding challan details not received from the bank.

Match Failed (Challan): TAN and/or amount relating to a challan in the statement do not match with the corresponding details received from banks.

Match Failed (Transfer Voucher): Amount relating to a transfer voucher does not match with corresponding details received from PAO.

Provisionally Booked: In case of Government deductors where TDS/TCS statement is received by TIN and mode of payment of TDS/TCS is through book entry (transfer voucher) and e-TBAF details from PAO is not received by TIN.

What is the significance if the status of challan is ‘Booked’?

If the challan is in Booked status, credit of tax deducted will be reflected in the annual tax statement (Form 26AS) of all the underlying deductees with a valid PAN.

Correction in challan details is not allowed once a challan is booked. Correction can be made on underlying deductee records of a booked challan.

What should I do if the status of challan is Match pending?

A challan is in Match pending status as the CIN is not present in the payment information provided by the Bank. As a result the credit of tax deducted will not be reflected in the Form 26AS of corresponding deductees with valid PAN.
The possible cause could be due to error in quoting CIN details (Challan serial no., BSR code and challan tender date) either in the TDS statement or in the details provided by the Bank. Error in TDS statement can be rectified by filing a correction statement, where as error. What should I do if the status of challan is in status ‘Match failed’?

A challan is in Match failed status as the TAN/challan amount in the statement does not match the details provided by the Bank. As a result the credit of tax deducted will not be reflected in Form 26AS of corresponding deductees with valid PAN.

The possible cause could be error in quoting challan amount. The same can be rectified by filing a correction statement.

Correction in ETDS statement at multiple times FAQs (Freequently Asked Questions)

How many times can I furnish a correction TDS/TCS statement?

A correction TDS/TCS statement can be furnished multiple times to incorporate changes in the regular TDS/TCS statement whereas a regular TDS/TCS statement will be accepted at the TIN central system only once. What are the important points to be kept in mind while preparing correction statement more than once on the same regular statement?
You have to kept in mind, the following points while preparing correction statement more than once on the same regular statement:
The TDS/TCS statement on which correction is to be prepared should be updated with details as per all previous corrections.
Modifications/addition/deletion in correction statements accepted at the TIN central system only should be considered. The first correction filed by me contains three types of correction (three PRNs) and one of the types of correction has got rejected at the TIN central system. What should I do?
The steps as under should be followed:
You have to update modifications as per the accepted corrections in the TDS statement.
Identify the record for which correction was rejected earlier by its sequence no. and fields for identification
Correct the said record.
Correction statement should contain updated values as well as value of identification field as per regular statement. Which provisional receipt number should I quote while preparing correction statement more than once on the same regular statement?
There are two fields for Provisional receipt number (PRN) in a correction statement as under: a. Original Provisional receipt number – PRN of the regular statement should be mentioned in this field.b. Previous Provisional receipt number – PRN of the last accepted correction statement should be mentioned in this field. In case the value in this field is incorrectly mentioned, the statement will get rejected at TIN central system for the reason: “Either Previous Provisional Receipt No. provided is incorrect or combination of Original Provisional Receipt No. and Previous Provisional Receipt No. is not in sequence”ExampleSingle batch correction statement – Only one type of correction in the filea. You have filed a regular statement having PRN 010010200083255 and subsequently filed a single batch correction statement having PRN 010010300074112. While preparing correction statement, you have to mention PRN 010010200083255 in the field original PRN and the PRN 010010300074112 in the field Previous PRN.Multiple batch correction statement – different types of correction in a single fileb. You have filed a regular statement having PRN 010010200083255 and subsequently filed a multi batch correction statement having three batches and corresponding PRNs as 010010300074112, 010010300074123 and 010010300074134. While preparing the correction statement, you have you have to mention PRN 010010200083255 in the field original PRN and check the status of all the three PRNs of correction statement
If all the three PRNs are accepted at the TIN central system, you may mention any of the three PRNs in the field previous PRN
If any of the three PRNs is rejected, then you should mention the PRN which has been accepted at the TIN central system in the field Previous PRN
If all the three PRNs are rejected, then you must mention the PRN of the regular statement, i.e. 010010200083255 in the field Previous PRN. How many times can I update PAN of a deductee/transacting party?
Structurally valid PAN of a deductee in the regular statement can be updated to another structurally valid PAN only once. When does a statement get ‘Partially Accepted’?
A correction statement containing updates in PAN of deductee/employee may get Partially Accepted. This is possible when the PAN in the any of the records being updated by you in the correction statement is invalid, i.e. PAN not present in PAN Master Database. In such a scenario, the said record gets rejected resulting in partial acceptance of the statement. What should I do if the status of correction statement filed by me is ‘Partially accepted’?
In case correction statement is in status ‘Partially accepted’, you have follow steps as under:
You have to update modifications as per the accepted records in the TDS statement.
Identify the deductee/salary record which has got rejected due to invalid PAN.
Rectify the incorrect PAN
Correction statement should contain value of identification keys as per regular statement along with the updated values. What could be the cause of rejection of TDS/TCS statement for the reason “Total Deposit amount of deductees is more than Challan amount actually deposited in bank”?The total tax deposited amount as per challan should be greater than or equal to the total tax deposited amount as per deductee details, else a regular TDS/TCS statement will not get validated through FVU. If you file a correction statement for adding deductee records under a particular challan, the total tax deposited as per challan in regular statement should be greater than or equal to the total tax deposited in deductee details as per regular as well as correction statement. Note: Amount in the fields Interest and others in the challan is not considered in the total tax deposited as per challan.

Unique Identification Numbers Bill

The Cabinet today approved the proposal for introducing the National Identification Authority of India Bill, 2010 in Parliament.

The Bill proposes to constitute a statutory authority to be called the National Identification Authority of India and lay down the powers and functions of the Authority, the framework for issuing UID numbers (aadhaar numbers), major penalties and other related matters through an Act of Parliament.

This will involve an expenditure of ` 3023.01 crore which includes project components for issue of UID numbers (called aadhaar numbers) by March 2011, and recurring establishment costs for the entire project phase of five years ending March 2014.

The UID project is primarily aimed at ensuing inclusive growth by providing a form of identity to those who do not have any identity. It seeks to provide aadhaar numbers to the marginalised sections of society and thus would strengthen equity. Apart from providing identity, the aadhaar number will enable better delivery of services and effective governance.
The Bill seeks to establish the National Identification Authority of India for the purpose of issuing aadhaar numbers to individuals residing in India and to certain other classes of individuals, the manner of authentication of such individuals and other related and incidental

matters.

What is UID(unique Identity Numbers)?

Nandan Nilekani, who heads the National Authority for Unique Identity of India aims at provide unique number to all Indians but not smart cards.

Nandan Nilekani said the unique ID number will not substitute other existing numbers a person may have which includes PAN, passport number, ration number. Rather, it will be an additional, unique number to be cited along with existing numbers for different purposes.

This ID cards will help to weed out duplicate cards that are widespread today (notably in BPL ration cards), and, may be, benami bank accounts and property deeds.

Nilekani team will make available a unique ID database to all ministries and other partners, who can then integrate their databases (covering passports, ration cards, job cards, PAN cards) with the unique ID database.

Participation in credit cards is entirely voluntary. This will also be the case with the unique ID scheme. Citizens will not be obliged to get a number. But those that don’t will find it very inconvenient, they will not have access to facilities that require you to cite your ID number.

Notification Income tax Due date extended to 15.10.2010

F.No. 225/72/2010-ITA.IIGovernment of IndiaMinistry of

FinanceDepartment of RevenueCentral Board of Direct Taxes

Dated : September 27, 2010
Order under Section 119 of the Income Tax Act, 1961

On consideration of the reports of disturbance of general life caused due to floods and heavy rains, the Central Board of Direct Taxes, in exercise of powers conferred under section 119 of the Income Tax Act, 1961, hereby extends the due date of filing of returns of income for the Assessment Year 2010-11 from 30.09.2010 to 15th October 2010. Accordingly the due date for Tax Audit report u/s. 44AB of the Income Tax Act is also extended to 15th October, 2010.
(Ajay Goyal)Director (ITA. II)

PROBLEM IN REGISTRATION OF DIGITAL SIGNATURE IN e-FILING

Income Tax Department issued few Clarification and suggestion regarding filling of Income tax Return by Corporate tax payers and other assessees with digital Signature.

It is observed that Corporate users are registering the DSC and immediately trying to upload the I-T Return. This will throw up an Error like "Your DSC is not registered". Therefore, it is requested that whenever the new DSC is being registered or DSC is being updated, the user should first log out and then login again for the registration or updation to take effect, and then only upload the I-T return.

Requirement of encrypted PAN on DSC for non-resident signatories of foreign companies has been relaxed. The signatory may register with a non-PAN based DSC from the CCA, India and use the same DSC while uploading the return. This facility is available ONLY for all foreign companies under the jurisdiction of respective International Taxation wards or circles of the Income Tax Department. Foreign companies still facing any difficulty may send a email to efiling@incometaxindia.gov.in or efiling.administrator@incometaxindia.gov.in giving their name, PAN and jurisdiction.