IT Law does not offer any tax benefit on prepayment penalty on housing loans

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: My late husband had invested Rs 1 lakh in a tax saving bank deposit under Sec 80C. He passed away this year and I am in the process of streamlining and closing his accounts and getting his investments, etc. transferred in the names of the nominees concerned, including myself. When I approached the bank for terminating the abovementioned tax saving deposit, they told me that the since the lock-in period for the deposit is five years, the same cannot be prematurely encashed. I find it strange that the law requires a deposit to be continued in the name of a deceased person .Is the bank correct in its stand?

—MS Raje

You are right in observing that any investment cannot be continued in the name of a deceased person. The deposit should be terminated and the amount should be transferred in the nominee's name. You can refer Bank Term Deposit Scheme, 2006 Notification No. 203/2006, dated 28-7-2006 to the bank officials concerned. Point number 13 and 14 (reproduced below) specify the procedure to be followed in the case of the death of the depositor.

"13. Right of nominees

1) In the event of the death of the holder of a term deposit in respect of which a nomination is in force, the nominee or nominees shall be entitled at any time before or after the maturity of the term deposit to encash the term deposit.

2) For the purpose of sub-paragraph (1), the surviving nominee or nominees shall make an application to the branch manager of the bank, supported by proof of death of the holder and of deceased nominee or nominees, if any.

3) If there are more nominees than one, all the nominees shall give a joint discharge of the receipt at the time of receiving the payment.

14. Payment to legal heirs

If a holder of a term deposit dies and there is no nomination in force at the time of his death, manager of the branch of bank from where the term deposit was issued, shall pay the sum due to the deceased, to his legal heirs."

Can I claim deduction on prepayment penalty in case of home loan takeover from one bank to another? Will this be u/s 80C or u/s 10?

— Jagroop Singh