Amount reinvested after maturity of NSC is not taxable

Jan 29 2013, 09:02 IST
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SummaryCan I buy a term plan jointly with my wife? What is the maximum age till one can buy a term policy.

Can I buy a term plan jointly with my wife? What is the maximum age till one can buy a term policy. Also, till what age does the policy cover the insured person?

— Amitav Kumar

Individual term plans are generally issued to a single life assured. However, some plans like HDFC Term Assurance Plans are issued either in single or joint names (first claim). The maximum age for entry and coverage varies across companies. For some companies, the upper maximum entry age is 65 years and the maximum upper age for policy coverage is 75.

If I reinvest the entire amount of NSC (principal and interest earned) in NSC for another five years, do I still have to pay tax on the interest earned after the maturity of the first NSC?

— Gurdeep Singh

Interest income from NSC investment is taxable. The annual accrued interest is not paid to the investor, but, instead, gets accumulated in the account itself. So, each year's interest for the first five years is considered reinvested. Since it is deemed reinvested, it qualifies for a fresh deduction under Section 80C, thereby making it tax-free. The interest so earned is added in ‘other income’ and treated as part of deduction under Sec 80C.Only the sixth year’s interest, when the NSC matures, does not receive a tax deduction as it doesn’t get reinvested. The reinvested amount after maturity is not taxable.

Of Ulip, NPS and PPF, which is the best option for long-term investment ?

— Dinesh Sharma

The appropriateness of a category depends on the risk appetite of the investor. If the risk appetite is low, PPF is suitable as it now gives tax-free return of 8.8%. For high-risk-appetite investors willing to stay invested for more than 10 years, Ulip with equity option is advisable. In Ulip, the charges are higher in the initial years, but get reduced after the fifth year. For retirement planning, NPS is a goof option. The charges, at 0.25%, are the lowest and provides combinations of equity, bonds and G Sec.

How do life insurance companies work out annuity? How is the rate fixed?

— Chirag Jain

Annuity is a series of payments made by an insurance company to the annuitant, which has an unknown duration linked to the date of death of the annuitant. The contract terminates on the death of the annuitant. Thus, a life annuity is a form of longevity insurance. Annuities can be purchased to provide an

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