• LIC insurance maturity proceeds

Dear Sir,
I have the following query on income tax liability on insurance maturity proceeds:

I am an NRI and have started paying an LIC policy in UAE on 28/07/2007 with a quarterly premium payment of US $ 4961.08 (AED 18,257), Sum Assured is US $ 75,000. Premium Payment term is 5years and maturity date 28/07/2018 (11years).

I have transferred the policy back to India on 24/06/2012 after the policy is fully paid up in UAE, based on my intention that I will move back to India. The conversion rate applied on the date of transfer is US $ 56.99. Accordingly, the Sum Assured has been changed to INR 42,74,250.00

I have received the maturity proceeds on 28/07/2018 for an amount of INR 58,94,786.00 after deducting TDS of INR 59,543.00. I am still maintaining my NRI status continuously. 
The Life insurance is continued further until the death. In case of death the amount receivable is INR 42,74,250.00

I have also gone through the Income tax circular no. 7/2003 dated 05.09.20013, but I didn’t understand why do I need to pay income tax on the maturity proceeds if the premium payments made myself is almost equivalent to the maturity amount. (ie US $ 4961.08 x 4 qtrs x 5years x 56.99 = INR 56,54,638.99). I would like to know the tax liability and what action to be taken to mitigate the tax liabilities.

my email address for communication : [deleted]

Regards
Sudhakara Kumar M (M S KUMAR)
+[deleted]
Asked 2 years ago in Income Tax

Dear Sir,

Hope you are doing well !

In case the annual premium of the policy is more than 10% of the actual capital sum assured, the maturity proceeds of the policy will not be exempt under Section 10(10D) and will be taxable on maturity. Also, in such a case, a tax deducted at source (TDS) implication can also arise - exact rate of TDS deduction will depend on your residential status at point of release of maturity benefits - resident or NRI.

However, to claim deduction under section 80C the premium paid should not exceed 10% of the sum assured where the policy has been issued after 1st April 2013.

Earlier the limit was 20%.

Thanks & Regards,

Payal Chhajed

Payal Chhajed
CA, Mumbai
4896 Answers
91 Consultations

5.0 on 5.0

This is not just in case of NRI that one has to pay tax on such proceeds from LIC, it is applicable for all resident or NRI u/s 10(10D) if you have entered into a policy after 2003 but before 2012 and if the premium amount is more than 20% then in that case you can not claim deduction u/s 80C and also when you receive such proceeds it is not exempt u/s 10(10D) but taxable in hands of receiver and therefore TDS has been deducted.

Therefore there is no way to save tax on such LIC proceeds because you chose a policy where premium per year was more than 20%.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
3668 Answers
40 Consultations

5.0 on 5.0

Dear Sudhakara

Please note that maturity value received from LIC is not taxable. It's exempt u/s 10.

You can claim your TDS while filing return of income.

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi Sudhakara,

When the premium paid on the policy does not exceed 10% of the sum assured for policies issued after 1 April 2012 and 20% of sum assured for policies issued before 1 April 2012– any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax under Section 10(10D).

Taxation, where the premium paid, is more than 10% of the sum assured – Any money received from a life insurance policy, where the premium is more than 10% or 20% of the sum assured as the case may be, is fully taxable.

Karishma Chhajer
CA, Jodhpur
2272 Answers
15 Consultations

5.0 on 5.0

Dear Sir,

While computing the amount taxable out of the maturity proceeds, premium paid by the assess shall be excluded – Circular No. 7/2003 dated 05.09.20013.

Payal Chhajed
CA, Mumbai
4896 Answers
91 Consultations

5.0 on 5.0

As per my experience when the premium paid is allowed as deduction u/s 80C entire amount received on maturity is exempt. However when the same is not allowed as deduction entire amount is taxed.

Therefore the entire proceeds received by your good self will be taxed under income tax.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Sir I have mentioned in my 1st reply that if a LIC proceed is not exempt u/s 10(10D) then same will be taxable under the head income from other sources there is no section which tax's proceeds from LIC but since section 10(10D) exclude the same it becomes taxable, section 56 covers all income which are not taxable under other heads of income.

For residents TDS is deducted on same u/s 194DA and for non resident TDS will be deducted under 195.

Hope you will be satisfied with this answer.

Thank you

I have done a bit of research and found out that since you have not claimed any deduction such amount in LIC can be treated as your investment and when you receive such income you can claim long term capital gain on such income by deducting the amount of premium from the amount you received on maturity.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
3668 Answers
40 Consultations

5.0 on 5.0

My apologies. I overlooked the word "quarterly".

If your premium mentioned is quarterly, your annual premium exceeds the 20% of sum assured. Accordingly, you will not get the exemption of section 10.

The amount received on maturity less the premium paid by you will be taxable as income from other sources.

Please refer below circular for more details:

https://www.incometaxindia.gov.in/Communications/Circular/[deleted].htm

Circular no. 7/2003 dated 5.09.2003

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Dear Sir,

The premium paid will be deducted from the amount received before applying the tax on the maturity proceeds.

Karishma Chhajer
CA, Jodhpur
2272 Answers
15 Consultations

5.0 on 5.0

Hi,

Since the premium paid by you exceeds 10% of the sum assured you will not be exempt and tax will have to be paid on the maturity proceeds.

Regards,

Nikhil

Nikhil Khanna
CA, Mumbai
1428 Answers
19 Consultations

4.8 on 5.0

While computing the amount taxable you can deduct the premium paid by you – Circular No. 7/2003 dated 05.09.20013.

Nikhil Khanna
CA, Mumbai
1428 Answers
19 Consultations

4.8 on 5.0

Hi,

- Premium paid is more than 20% of the sum assured.

- You need to pay tax on the sum received on the maturity after deducting premium paid. Sum received will be 59,54,329.

- Claim benefit of TDS deducted at the time of filing of ITR.

Thanks

Vivek Kumar Arora
CA, Delhi
3800 Answers
242 Consultations

5.0 on 5.0

Hi,

Premium paid will be deducted from the money received by you and tax will be applicable only on differential amount.

There is a cbdt circular in this.

Lakshita Bhandari
CA, Mumbai
5245 Answers
351 Consultations

5.0 on 5.0

Hi

Yes tax to be paid on diff amount that is maturity proceed minus premium paid.

Swati Agrawal
CA, Mumbai
1146 Answers
7 Consultations

5.0 on 5.0

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