Life insurance maturity tax

Life insurance maturity tax

Sir,
I invested single premium of Rs 160000/- in Reliance Life Insurane with unit linked plan named Automatic Investment plan during 2008. Sum assured Rs 2 Lakhs. This year 2016 I fore closed and got a Total refund of only Rs 185000/-. the Ins company deducted Rs 1854/- under sec 194DA.            My tax slab is 30%. Kindly workout the balance to be paid? whether it is coming under Long term capital gain tax?

Asked 7 years ago in Income Tax

hi,

As per section 194DA of the Income Tax Act, 1961, any sum received by an insured Indian resident from an insurer under a life insurance policy shall be subject to TDS @ 2% if the said sum is not exempted under section 10(10D). This means that policy proceeds exempted under section 10(10D) will be given to the insured without TDS (Tax Deduction at Source).

If the policies were bought before April 2012, then to claim benefit under 80C and 10(10d), your insurance cover should be at least 5 times of annual premium.

But if your policy is not satisfying these conditions then neither you will get section 80c benefit, nor policy maturity proceeds will be tax free under section 10(10d)

Sum received from insurance policy falls under from from other sources, hence it will not come under capital gain.

you need to add this income to your other sources of income, to arrive at the tax liability. and taking care of all the deductions.

if you have already exhaust all the deduction available under 80c to 80u.

then your tax liabilty on amount received will be 185000*30% -1854 =Rs 53646.

Vishakha Agarwal

CA, Bangalore

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Amount invested Rs 160000/- was already tax paid. Again paying tax for Rs 185000/- will become double taxation for the principal investment Rs 160000/-
I refer FINANCE Act , 2003 CIRCULAR NO 7/2003, Dt.5-09-2003 tells as follows.
http://www.incometaxindia.gov.in/Pages/communications/circulars.aspx
10.3 The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause

Kindly reply whether tax is for Rs 25000/- or for Rs 185000/-?
Since this fund is invested in Equity, debt funds then why not covered under Long term capital gain tax?

Asked 7 years ago

TDS deduction shows that your policy is taxable. it was purchased before april 2012, then its sum assured should have been atleast 5 times of annual premium. As your sum assured is less then 5 times of the premium amount paid, therefore it is taxable.

your intention of investment was in to invest in life insurance policy. and you have invested in that policy. Insurer have invested that amount in mutual funds for the growth of that investment. As you have not directly invested that amount in equity -debt fund, it will not amount to capital gain.

Vishakha Agarwal

CA, Bangalore

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I think your question is already answered

Shyam Sunder Modani

CA, Hyderabad

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Dear Sir,

Since, your premium was more tha 20% of sum assurd, It's maturity is taxable under the head of other sources @ 30%.

Please feel free to call/ revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar

CA, Mumbai

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KINDLY GO THRO THE BELOW CIRCULAR AND REPLY FOR MY QUESTION

FINANCE Act , 2003 CIRCULAR NO 7/2003, Dt.5-09-2003 tells as follows.
http://www.incometaxindia.gov.in/Pages/communications/circulars.aspx
10.3 The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable

Asked 7 years ago

Hi,

i have read this,

it is just saying insurance policies are treated at par with other investment schemes -similar to deposits or bonds

it does not mean that Investment in life insurance policy is treated as capital asset and for taxation purpose it is Capital gain.

you will be taxed on Rs185000.

please find the link below from incometaxindia. gov.in- goto page 12

http://www.incometaxindia.gov.in/Tutorials/Income-from-other-sources-Theoritical.pdf

It will help to clear your doubt on under which head your life insurance proceed would come.- according to direct tax law it would come under income from other sources.

there are two more sites for your reference

http://www.business-standard.com/article/pf/all-you-need-to-know-about-life-insurance-and-its-tax-implications-115052800737_1.html

http://www.financialexpress.com/industry/investor-education/life-cover-proceeds-not-always-tax-free/18211/

Vishakha Agarwal

CA, Bangalore

448 Answers

85 Consultations

5.0 on 5.0