I have recently surrendered a Single Premium ULIP Policy taken in Feb 2011 at Premium Rs 5 Lacs Sum Assured Ra 6.25 Lacs. Since the Premium is more than 20% of Sum Assured the income from surrender proceeds is not exempt u/s 10(D). I am waiting for the Rs 8.67 Lacs to arrive in my account. Generally I file my Income Tax Return (including ITR4) but never come across this kind of problem. When I go to Income Tax India website I find the following information: Income under the Capital Gains Chargeability: Capital gains shall be chargeable to tax if following conditions are satisfied: a) There should be a capital asset. In other words, the asset transferred should be a capital asset on the date of transfer; b) It should be transferred by the taxpayer during the previous year; c) There should be profits or gain as a result of transfer. Meaning of Capital Asset [Sec 2(14)] Capital Asset is defined to include: a) Any kind of property held by an assessee, whether or not connected with business or profession of the assessee. The word property is not defined in Income Tax Act but if I see legal definition of the word property it is very broad and I can interpret to include the ULIP Policy. Income from Other Sources Any income which is not chargeable to tax under any other heads of income and which is not to be excluded from the total income shall be chargeable to tax as residuary income under the head “Income from Other Sources”. Since my interpretation is that it is a property transaction I am entitled to deduct indexed cost of acquisition and net income chargeable to Capital Gains is Rs 76541/- only. But I find a general opinion that entire proceeds of Rs 8.67 Lacs is chargeable to Income from Other Sources and therefore asking this Forum about your opinion. I know that 1% of Rs 8.67 Lacs is going to be deducted as TDS but that does not mean it is to be considered as Income from other sources. Till 2003 the proceeds of any Life Insurance was exempt u/s 10(D) then Govt noticed that Single Premium Policies are different from conventional Life Insurance and brought the condition of 20% and further reduced it to 10% but Income Tax Act never said about chargeability under any Head of Income. There might be cases of Tax evasion and Govt introduced TDS on entire proceeds but it does not mean it is chargeable under Income from Other Sources. Kamalakar
hi,
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.financialexpress.com/industry/investor-education/life-cover-proceeds-not-always-tax-free/
Dear Ms Vishakha Agarwal, The Advance Learning material could not be called "tax law". This material could be prepared by a person who is trying to interpret the Law. Moreover there is not a single case where the premium is more than 20% or 10% and the person is showing only the cases exempt u/s 10(D), so he is playing it safe. Although not convinced about the "Law" from this material could you please tell me whether the entire proceeds (which includes the premium) are taxable under Income from other sources. If this is so how the amount of premium could be taxed twice? This is against Natural Justice. There is no clarity on taxable amount even when it is considered as Income from Other Sources. Kamalakar
Hi kamalakar,
those study material are prepared by Income tax people only.
here is the clarification
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. As per section 10(10D) read with explanation to Section 80C(3A), actual sum assured simply means the sum assured which is least in all the policy years and does not include any bonus amount which is to be received over and above the assured amount. This 'actual sum assured' shall also not include any premiums which are to be returned to the policyholder.
so suppose:
total premium paid by an assessee- Rs 100000
sum assured Rs130000
Income accured -Rs130000- Rs100000
tax slab 30%
tax payable(excluding edc cess, etc) rs9000
tds Rs 1300
tax payable=Rs9000-1300 =Rs7600.
so if the amount which you are going to receive includes premium amount paid by you for previous years , shall not be included to calculate taxable income.
The study material has source : www.trpscheme.com I don't consider TRPs as experts on Income tax matters. Further I have already commented on the material. Rest of the content of your answer is also confusing. On one hand you are writing "the policy proceeds would be taxable in the hands of the insured" but using the words "sum assured" and "premiums paid" in the example. Following are my actual figures: I am going to get Rs 8.67 Lacs which may be called "policy proceeds" It is a Single Premium Policy and the Premium I paid in Feb 2011 was Rs 5.00 Lacs The Sum Assured was Rs 6.25 Lacs. Kindly tell me the Taxable amount for the above. Don't worry about slab etc. I can calculate that. Kamalakar
The sum assured is the amount of money an insurance policy guarantees to pay up before any bonuses are added. In other words, sum assured is the guaranteed amount the policyholder will receive. This is also known as the cover or the coverage amount and is the total amount for which an individual is insured. Maturity value is the amount the insurance company has to pay an individual when the policy matures. This would include the sum assured and the bonuses.
you need to check with the policy provider. the bonus value and it sum assured includes premium amount paid, to arrive at correct taxable amount.
For the above Terms used by you the figures are as follows: Sum Assured Rs 6.25 Lacs Maturity Value Rs 8.67 Lacs Bonuses 8.67-6.25 = Rs 2.42 Lacs Premium Paid Rs 5.00 Lacs Kindly tell me the Taxable Amount. Kamalakar
Dear Sir,
It will be taxable under the head income from other sources
first you need to know whether sum assured (Rs 6.25Lacs) includes any premiums which are to be returned to the policyholder.
If its include then that part of premium will get reduced from Rs 6.25 Lacs, and remaining amount will be taxable.
whole premium amount will not form the part of sum assured you need to check your policy for premium return policy after maturity.
you also need to check and confirm whether RS 2.24 Lacs are in the form of bonuses.
Thank you Vishakha & Abhishek. I would like to have an Income Tax Lawyer's opinion about submitting return considering this amount as Capital Gain and follow up with appeal with tribunal and court after the return is rejected. I am proposing to deposit tax considering it as income from other sources but submitting return considering it as Capital Gain claiming refund just to avoid interest penalty.
Sounds to be a good approach for the person who is ready to fight out in litigation.
here are extracts from bare act of income tax..i think it will help, to understand that income will fall under income from other sources.
it is lengthy but worth:
Section - 56, Income-tax Act, 1961-2016
F.—Income from other sources
income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession" or under the head "Salaries";
Section - 2, Income-tax Act, 1961-2016
clause (24) (xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Explanation.—For the purposes of this clause*, the expression "Keyman insurance policy" shall have the meaning assigned to it in the Explanation to clause (10D) of section 10 ;
Section - 10, Income-tax Act, 1961-2016
(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—
(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or
(b) any sum received under a Keyman insurance policy; or
(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured ; or
(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:
Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:
Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c), effect shall be given to the Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be :
Section - 88, Income-tax Act, 1961-2014
[(2A) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual capital sum assured.
Explanation.—In calculating any such actual capital sum, no account shall be taken—
(i) of the value of any premiums agreed to be returned, or
(ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be, or, may be, received under the policy by any person.]
here is the link
http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx
so i hope you are now clear that it will come under income from other sources. but it is upto you at the end.
Hope the same is answered as I was out of country for work. If you need further answers pl mail on modani005@gmail.com
