Insurance & Pension Products have been most miss-sold financial product in last few years. Most buyers are lured into it in the name of good returns, added life insurance along with tax savings. After a few months/years the policy holder realizes that he has been sold a dud product and the only way to get rid of it is to surrender or make it paid-up policy. In this post we tell you what would be tax implication on surrendering a life insurance policy and pension plans.
There can be two tax implications on surrendering of life insurance policy or ULIPs
We explain the conditions for above points so that you can decide accordingly and lessen your tax burden.
Also Read: 9 Tips to Buy the Right Life Insurance
The surrender receipts are tax free if following conditions are fulfilled:
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.
Additionally the tax benefit on premiums paid in earlier years under section 80C can be reversed if
If policy is surrendered before the lock-in period, the surrender value would be paid after the lock-in period after deduction of applicable surrender charges.
Also Read: LIC Varishtha Pension Bima Yojana Review
The maturity value of Life Insurance Policy or ULIP is tax free if following conditions are fulfilled:
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.
The proceeds received from life insurance policy or ULIP on death of policyholder to their nominee is tax free under Section 10(10D).
Also Read: How much Time for Life Insurance Companies to Settle Death Claims?
Pension Plans and ULPP (Unit Linked Pension Plan) have adverse taxation at the time of surrender and maturity. The details are shown below:
The surrender value received on account of a Pension policy or ULPP is fully taxable.
Policyholder has the option to withdraw 1/3 of maturity amount as lump-sum and is tax free under section 10(10D). The rest 2/3 of corpus has to be used to buy annuity. Annuity income is fully taxable at applicable income tax slabs.
The proceeds received from life insurance policy or ULIP on death of policyholder to their nominee is tax free under Section 10(10D).
Budget 2014 (under new section 194DA) allowed deduction of 2% of the full surrender/maturity value in case the tax exemption under Section 10(10D) was not applicable and the value is more than Rs 1 Lakh. Budget 2016 reduced the TDS amount to 1% of the surrender/maturity value.
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.
In case the maturity/surrender value is tax free, you should mention the same in exempted income. In case the maturity/surrender value is taxable mention it in “Income from other sources” and pay tax on total maturity/surrender amount (without deduction of premium paid) received.
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If deduction under 10C has not been claimed in the year of investment,on what amount tax will be paid,entire maturity value or maturity val-invested premium?(policy does not qualify for 10D)
i had taken icici ULIP policy in Sept2016. My sum assured is 10 Lac & premium for 1 yr is 1Lac, which i had to pay for 5yrs. i have paid for 2 yrs only.
But now i want to surrender the ULIP, after payin 2-premiums. Now this surrender value, will go in debt fund for remaining 3yrs @3.5%. I will get this surrendered value in 2021.
Will this amount be taxable when i rcve in 2021?
I have invested in icici prulife amount of 23 lakhs devided in 12-6-2-3 lakhs but i was misled with info and i have an nri account its been few months n now found out that have to pay every year but they did not tell me this when policy was bought so if i surrender how much fine will i face and wid i have to pay tax amd wud i not get my money within lockin period lockin is for 7-10 years
My policy Equity1 ULIF was issued in Feb 2012. My policy term is 15years, I have continued my premium paid up to 7years i.e. (2012 to 2018). I want to go for Full Surrender now, Sum Assured-2Lakhs, Annual Premium-12000, and Total Value of Units Rs 120000 as on August 2018.
My question:
1. In this stage, if I go for full surrender, Will there be any deduction from the total amount?
2. Is there any chance of TDS deduction? If TDS deducted, How Will I show it in the IT return?
3. Will I need to show the received surrender amount without TDS deduction in IT return "other sources of income" column OR will it exempt under 10(10d)?
4. After the date of surrender, what is the payout time of the surrender amount from the side of the insurance company?
Please reply. Thanks.
I bought ULIp with 24000 annual premium and 240000 sum assured in 2007. It got matured in 2017 and the company provided settlement option of 4 years. I want to surrender my policy now.
Will there be a tax liability?
If yes then tax will be calculated on total surrender value or incremental value?
Rgds
As per Circular No. 7/2003 dated 05.09.20013 (the relevant portion for Section 10 (10D), it states that while computing the amount taxable out of the maturity proceeds, premium paid by the assessee shall be excluded. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable.
Considering the above, whether the entire lic surrender value amount will be taxable ( in cases where tax exemption
under sec 10(10d) is not available)
or
the taxable amount will be the surrender value amount minus the premium paid amount for the policy.
Please inform.
In the second case case where total premium paid amount is more than surrender value amount, it will result in negative cash flow. In such case, can the negative difference amount be shown as "Loss" under "Income from other sources" in Income Tax Return?
Please inform.
For Maturity proceeds of ULIP which we have to show under exempted income under section 10(10D), I would like to know if we show the complete sum received at maturity OR sum received minus total premium paid. Here I look at premium paid as an invested value versus an expense. Please guide. Thanks
Is Ulip maturity recd taxable even if no deduction was made under 80 C when the Ulip were purchased.
I have a IPru assured pension plan with no sum assured or insurance. I have this from 2010 and want now to surrender it. Will it be taxable.
I took the policy in 2010. Payed single premium of 192000. Terminated the policy in 2017 and got 255685 in 2017. 1% TDS is deducted at source. Gain is Rs 63.6K. Shall I need to pay tax for the gain or total of 255685?