We are at the end of Financial year and all life insurance companies have launched some new plans to cash in the last minute “tax saving” frenzy.

But **do you know that some of life insurance policies might not give you the desired tax benefit both at the time of investment and also at the time of maturity.**

## Eligibility for Life Insurance policy to get Tax Benefit?

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.

Also Read:How are ULIP & Life Insurance Policies Taxed on Surrender & Maturity?

### Exception:

**As a special case for life insurance of the disabled and those suffering from ailments,** the annual premium can be less than 15% of the sum assured – i.e. – Sum assured should be greater than 6.67 times the annual premium. This change was made in Budget 2013.

Also** Budget 2014 has mandated 2% 1% (effective June 1, 2016) TDS on the amount payable at maturity under Section 194DA** for all payments greater than Rs 1 lakh. So this taxation is getting stricter and trackable.

**Budget 2015** has introduced the facility to fill Form 15G/15H in case your annual income is less than the minimum taxable limit and you don’t want TDS deducted on Life Insurance maturity payment. This would be effective from June 1, 2015.

The above changes in tax laws applies to all kind of Life Insurance Policies, be it ULIP, Endowment Plan or Return of Premium Plans.

In case the Life Insurance does not qualify for tax benefit as above u/s 10(10D), the income received at the time of maturity on survival would be added to your income and taxed to your marginal tax rate.

You need not worry about the Term Insurance as the Sum Assured is always more than 10 times the annual premium paid. But if you are investing in ULIPs, Endowment Plan or Return of Premium Plans you need to do a thorough check.

There might also be cases **where a Life Insurance policy can be Tax Free for only a selected group of investors.**

## An Example:

Take example of HDFC Standard Life Insurance online ULIP – **HDFC Click2Invest**. In this case the investors opting for Single Premium would not get tax benefit u/s 10(10D) as the sum assured is only 1.25X of annual premium paid.

Also investors with age more than 55 years would not get any tax benefit at the time of maturity as the sum assured is only 7X of annual premium paid.

However they would** get limited tax benefit u/s 80C** using the following formula: minimum of (annual premium paid, 10% of Sum Assured, Rs 1,50,000)

Only investors opting for regular premium payment and aged less than 55 years would get full tax benefit both at the time of investment and at the time of maturity.

Do check and recheck before investing in these plans!

**Remember Life Insurance should be an “expense” to cover the risk of your life and never an “Investment”.**

ManojI have ulip plan of bajaj 2007. Premium 20000 sun assured 200000 but i have deposited top up 4 times 40000. Is partial withdrable and maturity texable

AmitThe maturity amount should be tax free. Check more details @ How are ULIP & Life Insurance Policies Taxed on Surrender & Maturity?

RKHi Amit,

I have purchased a life insurance (ULIP) from ICICI Prudential in December 2016. The premium is 1 lakh per year (10% of assured amount) and sum assured is 10 Lakhs. The policy terms is 10 years with a 5 year lock in period.

Can you please help me understand the following:

a) if there will be any tax implication if I withdraw the money after 5 years of lock in period and

b) also what is the tax implication if I withdraw money after 10 years term.

Please advise.

Thanks,

RK

AmitThere would be NO tax on both the cases as the sum assured is 10 times premium paid.

RKThanks Amit.

Will the no tax apply even if the policy holder is a NRI. Please suggest.

AmitYes No tax for NRIs too

P goyalHello sir , i had a LIC life insurance policy which are matured after 15 years (Since 2000), Which premium is Rs.129600 & sum assured is Rs 8 lacs. At time of maturity bank has deducted 10% TDS on interest part. Sir, Is that taxable or not?

AmitThere should have been no TDS on this policy and the TDS rates are 1% & not 10%. As I understand your policy maturity amount should not be taxable!

mpsinghSay,I take an ULIP for sum assured of 10,00,000 for an annual premium of 1,00,000. Suppose, I discontinue the premium payment after paying first installment. will the maturity proceeds be taxable after 5 years?

AmitFor ULIPs you need to pay at lease 5 year premiums for the amount to be tax free. Check more details @ How are ULIP & Life Insurance Policies Taxed on Surrender & Maturity?

v r sajani have unit linked policy whos prmium is 10000 and SA is 300000 i bought it in 2007

i am paying the premium regularly i want ot encash it will the amount be taxable

AmitThe surrender amount would be tax free!

RakeshI have a SBI ULIP plan which i took in 2008 with an annual premium of 1 lakh per year and the policy tern is 20 years. The sum assured is 10 lakhs. i have already paid 9 premiums and want to surrender the policy. The surrender value is approx. 12lakhs. Will i get the tax benifit under section 10(10D). Please clarify

AmitYes the maturity amount would be tax free

JACOBI took a LIC policy for US$6,000 on 28-11-2005 from their Bahrain operation, while working in Saudi Arabia.In 2009, I became a resident of India and transferred the policy to India at the then existing exchange rate of 46.71 Rs = 1 US$. This policy got matured on 28-11-2015 and the LIC deducted Rs 7,354/- from the final payment. When I took the Policy, I was verbally assured that the final payment will be Tax Free but now I understand the total payment of this Policy is Taxable income. Kindly advise

Regards, Jacob

AmitSorry to hear that. The miss-selling problem is rampant in insurance industry and unfortunately you are one of the victims of the same. Verbal promises means nothing. So you have to ideally pay taxes on your maturity!

raghavwidluvHi Sir,

I have PLI of Rs.5,00,000 SA. Monthly premium is Rs.1375 (+Rs.26 Tax=Rs.1401). Taken in October-2012. Now, I want to surrender the policy.

1) Does 80C Tax reversal applicable in my case ? (nearly 47 months paid)

2) Will thereby any tax deducted on Surrender Value.?

3) Do I need to mention Surrender Value in my Assessment under income.?

4) Can I claim under 80C for the premiums of 6 months (Apr-2016 to Sep-2016) paid in this FY 2016-17 in ITR even if I surrender the policy in October 2016.?

Thanks & Regards,

Raghav

Amit1. No Reversal as paid more than 2 years premium

2. No TDS

3. Surrender value can be mentioned as exempted income

4. Yes you can claim 80C benefit for all premiums paid in a year.

Check more details @ How are ULIP & Life Insurance Policies Taxed on Surrender & Maturity?

PraveenHi I have taken an endowment plan for 10 years premium & policy term is also 10 years. I am 53 years old & in starting my sum assured is less than 10 times of 1st year premium but at maturity my sum assured increases to more than 10 times. I want to know in my policy will i get the tax benefit under 10(10D) at maturity or not.

AmitSum assured and maturity benefit are two different things. In most cases Maturity benefit = sum Assured + Bonus. What I can make out from your query is your sum assured is less than 10X of premium paid and hence your maturity amount would be taxable.

kumar satyamSatyam

Sir i got a maturity of 909900 for a ulip plan whose premium was 1lac per anum, u/s 194da 2% tax deducted. just tell me what to show as my income while i am a businessman.

AmitThe entire maturity amount would be shown in “income from other sources” while filing income tax returns.

Nagaraja Naidu JaladiSir, if the maturity amount from ULIPs is eligible for tax exemption under section 10 (10D), should it be still shown as INCOME FROM OTHER SOURCES while filing income tax returns?

AmitNo it would then be shown in “Exempted income”

BarsanI had opted for hdfc endowment supreme subidha ulip on may 2010 with yearly premium 36000 for 11 years.sum assured is 1.8 lakh in case of death.in case of maturity will get the money on the units earned by the plan.but now i have decided to surrender the plan.i have invested rs 252000 for 7 years.now am getting around 325000.will there be any tax deduction with the amount i shall get.

AmitNo the amount would be tax free. Check more details @ How are ULIP & Life Insurance Policies Taxed on Surrender & Maturity?

devendra c. patelI have invested Rs.4000000/- (Forty Lecs ) out of Non Resident external account (NRE A/C ) in Kotak Life Insurance

vide product Kotak Single invest advantage ( UIN-107L065V01 on 31/03/2011. Surrender amount will be deposit back to the NRE A/C. T.D.S. applicable or not.

AmitTDS should be applicable

PriyaMy father had a ULPP which he surrender after 5 annual premium payments of rs 15000.tds on the same is deducted u/s 194DA @2%on surrender value. Please tell me why it is taxable and amount of taxable income, under which head taxable. If surrender value is rs 110000(approx.)

PriyaAlso he has not taken the benefit under 80C/80CCC in any of these 5 years. Policy taken in 2010.

AmitAll money received as surrender value of ULPP is fully taxable. So a TDS of 2% has been deducted. While filing tax return, you should show the surrender amount in “Income from other sources”.

Jugal Singh RathoreI have investe in bajaj allianz future gain ulip policy premium 200000 and premium paying team 5 years 2015 to 2019 and my sum assured is 7 time of premium 1400000 as per policy after 5 year kya mra TDS dedicated hoga

AmitThe policy on maturity would be taxable and hence 2% TDS would be deducted from the maturity amount.

ravikantplease clarify that whether after 2% TDS deduction from maturity amount, again I have to pay the tax while filing the annual return based on my total income.

AmitYes TDS does not pay taxes according to your applicable rates. You have to pay additional taxes according to slab or claim refund if excess TDS has been deducted.

BhimHI Amit,

I have ICICI Pru life – Lifetime ULIP – policy taken in 2006, sum assured 15Lakshs and premium is 1 lakh per annum. I have paid 3 continuous preimuns from 2006, 2007, 2008 and stopped paying after that. Since the fund has not grown much and i feel like surrendering and investing elsewhere.. Will there be Tax on the surrender value, that i receive.

Can you please advice

Thanks & regards,

Bhim

AmitAs the policy is being surrendered after 3 years and also the sum assured is 15X of annual premium, the surrender amount would be tax free

VenkatIf I have not availed 80(c) exemption for the payment of premium for purchase Ulip, is it still taxable at the time of maturity?

AmitULIPs maturity is taxable or not depends on the sum assured and the premium paid which you can check in the post. It does not matter if you have taken 80C exemption or not.