Tax Benefits of Life Insurance

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• Dear Basu, my relative had a Jeevan Saral policy. The date of commencement was 28/11/2007 and date of maturity was 28/11/2032.

  The Maturity Sum Assured was Rs. 184725 and Death benefit Sum Assured was Rs. 125000.

  Premium was Rs. 1500 quarterly, that is, Rs. 6000 per year.

  The policy was surrendered in December 2018 and the surrender value received is Rs. 84317.

  Please advise if the amount of Rs. 84317 is tax-free under section 10 (10D).

  Thanks.

  • Dear Kapil Sir,
    As the policy was purchased before 31st March 2012 and also the premium payable was well within 20% of the Sum Assured, such surrender amount will be tax-free for your relative.

  • Dear Basu, the policy was surrendered in December 2017 (not, December 2018). Sorry for the error.

    • Thank you very much, Basu. I understand that the premium payable is well within 20% of the Sum Assured. Just for my knowledge, should the premium be within 20% of the (1) Maturity Sum Assured (Rs. 184725) or (2) Death benefit Sum Assured (Rs. 125000)?

      Thanks.

      • Dear Kapil Sir,
        MSA is just a maturity amount which in no way related Sum Assured. Also, MSA is applicable only to this particular product. Hence, Death Benefit Sum Assured should be considered but not MSA.

        • Thank you very much, Basu.

• HELLO SIR
  I HAVE A JEEVAN-ANAND POLICY AND I COMPLETED 3 YEARS( INSTALLMENT IS 20854 ) NEXT DUE PREMIUM IS IN THIS MONTH OF FEB 2018 .NOW I HAVE TO SURRENDER MY POLICY ,HOW MUCH OF AMOUNT I GOT AFTER SURRENDER???????? THANKING YOU

  • Uma-Contact the LIC Branch.

• Sir, i have surrendered my LIC and PLI policies last month. all the policies were more than 7 years old.
  can you please tell me about the taxation of the surrender value I have received ?
  will this amount be added to my income for current financial year ?

  • Mrinal-Both are tax-free.

    • Ok Sir. Thank You so much.

• Sir,
  I have had two LIC jeevan anand policies which I started on yr July 2009 and surrendered on Aug 2017.
  Total surrender value received as 248000 .
  I am not sure about taxation of this amount.
  Am I suppose to pay tax on this ???

  As per this article, Sec 80C Reversal-Benefit you availed under Sec80C will be reversed if your policy closed or terminated within 2 years for traditional policies and 5 years for ULIP products .
  I am under 30% tax bracket.
  Pl guide.

  • Nirmal-It is tax-free.

• HI,

  My Self kondal, i had started LIC jeevan anand policy on Feb 2015 for 6 lakh sum around 35k per year.
  So i just paid two terms(2 years) 2016 & 2017.

  I decided to surrender it, as per above posts came to know that it is mandatory to complete 3 years.

  So after paying next term in Feb 18 and immediately can i surrendar?
  Still i need to wait until Feb 2019 ?
  If i need to wait till Feb 2019, can i directly surrendar or do i need to pay 4th term and surrendar?

  Can you answer please.

  • Kondal-Your policy will be eligible for surrender only when it completes 3 years. Hence, you have to pay the premiums for 3 years.

    • Thanks Basava,

      But my question is my policy is started on feb 2016, so it will complete 3 years on feb 2019.

      Without paying 4th term amount can i surrendar?

      Will they ask to pay the amount as the due date came?

      • Kondal-Once the policy completes 3 years, then it is eligible for surrender. They not ask you any dues.

  • Sorry policy is started on Feb 2016

• Hello Sir,

  I have Jeevan Saral policy of LIC for 35 years term paying quarterly premium of Rs. 12250/-. Started in March 2012. Last premium was paid in December 2016. Now I want to surrender the policy. How much amount will I get back? And will it be taxable? What about tax exemption I have availed in FY2016-17?

  • Rahul-Check with the nearest branch regarding surrender values. You have not mentioned the sum assured. As the policy completed more than 2 years, the returns are tax free.

• Basu, what a public service you are doing by this website. Hats off.

  Now, if i am correctly reading what you are saying, even if I claimed Tax benefits till last year or this year under Sec 80 C for my LIC or ULIP policy, I can still surrender them provided the LIC regular policy has completed 2 years and the ULIP 5 years and above.

  If so, I will run and surrender these useless policies. :) Every year I have been giving 50K but for no reason. After reading your website I have realized how limited they are as investment policies. Have you written somewhere about ULIP too in detail?

  • Venkat-Pleasure and go ahead. What information you are looking for in ULIP?

• I have a single premium "vima Bachat policy" of Rs 7,28,090 with effect from dt 15-10-2012. The sum assured is Rs 10,00,000. it will mature after 12 years. As per conditions of the policy LIC has to release 15% of sum assured in every 3 years as money back installment i.e. Rs 150000 in 2015. I received Rs 147000 after deducting TDS Rs 3000 in 2015 u/s 194DA. how should I Disclose my income ? Is It Rs 150000 ? if not 150000 then on which amount?

  • you declare 150,000 income from other source and claim tds on itr

  • Cehal-First read above post properly. You will get the answer.

• Dear Basavaraj

  My father in law has taken a single premium policy named ICICI Pru Lifelink Wealth SP by paying a single premium of Rs. 4,00,000/- with a sum assured of 125% of Premium i.e of Rs. 5,00,000/-.

  After completion of five years he has surrendered the policy in January 2016 and got surrendered value as mentioned below
  Amount Credited = 4,85,790.86
  Tax Deducted @ 2% of 4,85,790.86 = 9,716/-
  Net Surrendered Value = 4,76,074.86

  My queries are
  1. What amount is Taxable in this case - Rs. 4,85,790.86 or Rs 85,790.86.
  2. What amount He should mention in his return as Income Rs. 4,85,790.86 or Rs 85,790.86.
  3. If the entire amount i.e Rs. Rs. 4,85,790.86 is Non Taxable than why ICICI Prudential has deducted Rs. 9,716/- and deposited the same as TDS with IT Department. Can he has the reversal of this amount from IT Department.

  Waiting for your quick revert.

  Thanks & Regards
  Sanjay Sapra

  • Sanjay-1) It is tax free if 5 years completed.
    2) If they deducted TDS, then while filing IT return you can show it in exempt income and claim the TDS back.

    • Dear Basavaraj

      Thank you very much for your revert !

      The policy (ICICI Pru LifeLink Wealth II) was ULIP along with Life Insurance cover of 125% (Rs. 5 Lakh) of Single Premium paid (Rs. 4 Lakh) and was issued on 17th November 2010 and surrendered after 17th November 2015 i.e. after five years.

      Here Premium Paid (4 Lakh) is 80% of the actual sum assured which is Rs. 5 Lakh.

      How you correlate your revert given in appended mail with following section

      1. As per section 10(10D) in case of a life insurance policy issued after 1.4.2003 but on or before 31.3.2012 if the premium payable in any year exceeds 20% of the actual sum assured, then the policy proceeds would be taxable in the hands of the insured.

      2. For policies issued on or after 1.4.2012, the above mentioned limit of 20% has been changed to 10%.

      3. In case the premium payable in any year exceeds the prescribed percentage i.e. 10%, 15% or 20% of actual sum assured, as described in the preceding paragraphs, then the whole proceeds from the policy would get taxed in the year of receipt. However, in case of death of the insured, where his nominees receive the policy proceeds the same shall be tax free in the hands of the nominee(s) even if premium paid in any year crossed the prescribed percentage of sum assured.

      As per above section the Policy proceeds has to be taxable.

      I am really confused with this section, Will you please clarify how this section is not applicable on below said query.

      Regards
      Sanjay Sapra

      • Sanjay-The rules you mentioned are related to regular plans. Check the rules relation to single premium plans.

• Hello Sir,
  I had taken a one-time premium policy (ICICI Pru Lifelink Wealth SP) on 20/04/2011 (sum assured is Rs. 25,00,000 and one time premium is Rs.20,00,000 ) . At the time of surrender of the policy in 2016, I received a total amount of Rs. 25,00,000 . 2% of this was not deducted as TDS. Under section 10 (10D), what is the amount that should be considered as taxable income – is it

  a) Rs.5,00,000 which is the amount over and above the premium paid (Rs. 25,00,000 less Rs. 20,00,000)
  b) Rs. 25,00,000 which is the total amount received on maturity of the policy

  Thanks

  • Saren-It is 5,00,000. Because that is the gain.