If tax is applied on the principal of a contract at the time of its initiation, when you roll over the contract you have two choices in the treatment of tax.

• Apply tax on the principal (outstanding principal + outstanding interest, or, only the outstanding principal depends on your specifications) of the new contract.
• Since the principal of the old contract has already been taxed, you can choose to waive tax on the principal of the rolled-over contract. However, if this principal has an outstanding interest, from the old contract incorporated in it, then only this portion (the outstanding interest portion which is now a part of the principal), will be taxed.
• This option applies only to tax on principal and not to tax on interest.

This field assumes importance only under the following circumstances:

• Tax (for principal as well as interest) has not been waived on the old contract
• Tax, has not been waived on the rolled-over contract