INCOME TAX
Circular Number:
003
Dated 27/08/1968
Value of annuities receivable on annuity deposits
A question has arisen whether an individual who has made an annuity deposit under the relevant provisions of the Income-tax Act is liable to wealth-tax in respect of the value of annuities receivable by him on such deposits. The position in the matter is explained in the following paragraph.
2. A person making an annuity deposit under the Income-tax Act is entitled to received annuities in respect of the deposit over a period of 10 years, commencing after the expiry of 12 months from the date on which the deposit was made. The annuities represent annual equated instalments of the principal amount of the deposit and interest thereon. The right to receive annuities is an asset within the meaning of that term in section 2(e) of the Wealth-tax Act. The term "assets" as defined in that section includes property of every description movable or immovable, subject to certain specific exceptions. One of these exceptions specified in sub-clause (iv) of section 2(e) of the Wealth-tax Act is "a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant". Annuities receivable in respect of annuity deposits under the Income-tax Act are not covered by the sub-clause as these annuities can be commuted in certain circumstances, as stated in the proviso to section 280D of the Income-tax Act. The value of annuities receivable in respect of the annuity deposits, as on the relevant valuation date, is, therefore, includible in the net wealth of an individual for the purposes of wealth-tax. Such value is equivalent to the amount that would be received by the individual if the outstanding annuities were to be commuted as on the relevant valuation date. The amount payable on the commutation of annuities in respect of annuity deposits is required to be calculated in accordance with the "Table commuted value of annuities" set forth in appendices II of the Annuity Deposit Scheme, 1964, and the Annuity Deposit Scheme, 1966. The table of commuted value of annuities (which is the same under both the Schemes) is reproduced below :
Table of commuted Value of Annuities
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Where commutation is made Commuted value of annuities
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Where the Where the Where the
amount of amount of amount of
annuity deposit is deposit is deposit is
Rs. 10 Rs. 100 Rs 1,000
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1 2 3 4
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After the expiry of 1 year but before 2
years from the date of deposit 8.75 87.50 875.00
After the expiry of 2 year but before 3
years from the date of deposit 7.85 78.50 785.00
After the expiry of 3 year but before 4
years from the date of deposit 6.72 67.19 671.91
After the expiry of 4 year but before 5
years from the date of deposit 5.58 55.75 557.00
After the expiry of 5 year but before 6
years from the date of deposit 4.44 44.40 443.99
After the expiry of 6 year but before 7
years from the date of deposit 3.34 33.38 333.81
After the expiry of 7 year but before 8
years from the date of deposit 2.30 23.00 229.96
After the expiry of 8 year but before 9
years from the date of deposit 1.36 13.63 136.25
After the expiry of 9 year but before 10
years from the date of deposit 0.57 5.75 57.46
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Note: The amount of the commuted value will be calculated in the following manner :--
(a) For every unit of Rs. 1,000, if any, comprised in the amount of annuity deposit, the
amount of the commuted value will be calculated at the rates specified in column 4;
(b) For every unit of Rs. 100 if any comprised in the amount of the annuity deposit, remaining after the calculation at (a), the amount of the commuted value will be calculated at the rates specified in column 3; and
(c) For every unit of Rs. 10, if any, comprised in the amount of the annuity deposit, remaining after the calculations at (a) and (b), the amount of the commuted value will be calculated at the rates specified in column 2.
the aggregate of the amounts calculated as at (a), (b) and (c) will be the amount of the commuted value.