Does Your Life Insurance Offers Tax Benefit?

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• Hi Amit,

  Im planning to invest 2k monthly on SBI life ULIP(E-wealth insurance) for 10 years, Person who contacted me said there will be no Service tax(14%) & TDS 2% deductions on my investment & maturity respectively.As of now Im earning 1.8L/annum.
  Looking for your suggestions..

  • If you are looking to invest in ULIP for saving tax, ELSS (Tax Saving Mutual Funds) are much better choice. They offer flexibility, are more transparent and have no adverse impact on pre closure.

• Paid total premium of Rs.200000/- @ of Rs.50000/- premium per annum in 2007 to 2010 Under sec 80C with withdrawal benefit as per 10(10)D to the SBI Life Unit insurance cum pension . In May 15, I pre closed and received Rs.322000/- after TDS detection @ 2%. The sum insured is Rs.500000/- and the annual premium paid is less than 10%..I hope that the amount received is exempted from tax.

  • The tax benefits for Life Insurance are at two stages:

    While investing, the investment is exempted up to Rs 1.5 Lakhs as part of section 80C
    At the time of maturity, the maturity amount paid to the survivor u/s 10(10D) is tax free
    But Budget 2012 put on following conditions for Life Insurance policies to qualify for the above tax benefits:

    Only insurance policies which have sum assured of more than 10 times the annual premium paid would be eligible for Tax Benefit u/s 10(10D) at the time of maturity payment.
    At the time of investment the tax benefit would be limited to minimum of (annual premium paid, 10% of Sum Assured, Rs 1,50,000) u/s 80C.
    This change is for all Life Insurance Policies bought after March 31, 2012.

    Dear Amit, as I have taken my sbilife before 2012 and as such per old sec 10(10D) clause my maturity amount is exempted from Tax.

    • The above rules are for Insurance Plans and not for Pension products. You mentioned "SBI Life Unit insurance cum pension" which seems like pension plan (cannot find this product on SBI Life Website)

  • Unfortunately there are serious tax implications for premature withdrawal of Pension plan.

    First the premiums that you have claimed as part of deduction under section 80C in previous years would be reversed and you will have to pay tax on it.
    Secondly, the entire surrender value will be added to your income and you will have to pay tax on it according to your tax slab.

    Now taking your case if you have claimed exemption of Rs 50,000 every year u/s 80C then you will need to add that exemption as income in FY 2015-16 which is Rs 2 Lakhs
    Also you will need to add the maturity amount to your income in FY 2015-16. So in all you will have to add Rs (2+3.2 = 5.2 lakh) as income in FY 2015-16 and pay tax accordingly.

• Dear Amit,
  I have invested in ULIP plans of many insurance companies. All these plans meet the criteria of being exempt under Section 10 (10d). i wanted to know that whether i will be subject to tds of 2% under section 194DA if i surrender a 10 year policy after just 5 years.

  • No TDS would be deducted from ULIP surrender value if the plan qualifies u/s 10(10D) for tax exemption!

• Dear Sir / Madam,

  I came to know about your website from one of my friend and found ur email id. I have 1 query, My father has taken Birla sun life insurance in which he is the owner of the policy and I am the one who is insured. For year 2014-15 tax planning, I have paid the premium for this policy, request you to please let me know whether I can claim tax benefit or not.

  Regards,
  Sukrant Bora

  • What I understand is, your are insured by this policy but the policy holder is your father. The tax benefit can be claimed by one on whose name the investment is done, irrespective of who makes the payment. So in your case only your father would be able to claim tax benefit and not you.

    My comment is based on limited info you provided. If possible let me know the plan name and then we may investigate further.

• Yes if the policies were purchased before the date law came into effect, no tax would apply

• We invested 7lacs.. Got only 9 lacs.... Then we contacted CA..he said... Your sum assured is x1.25...so entire 9 lacs are taxable... What kinda taxation it is.. What we got then.... It is more than my regular income..what we earned 2 lacs in years...lost in income tax...
  We invested money so that we can give our profit in income tax...

• Totally agree the tax on these insurance cum investment products are ridiculous and so should stay away from these!

• Before 2012. There were no regulations and law...so new budget income tax regulations should not be applied for policies made before 2012...

• You will have to include the entire maturity amount of Rs 1,40,988 as income from other sources in the ITR Form. No deduction would be made for premium paid or TDS deducted.

• I have received maturity amount Rs.138224 of LIC Unit link policy after deduction of Rs.2764.@2% of Rs 140988 .though I have paid Rs 100,000 as lump sum premium in FY-2015-16.My query is whether I have to include full amount 138224 in ITR-1 OF AY 2016-17 or I can make deduction of the premium amount in ITR-1