taxation on prematured lic policies

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Deal Subedar
kukdookoo

Friends if a lic policy is prematured then high chances are that one will get less amount that the amount paid, low chances of getting the same amount and very very low chances of getting a little more, they don’t share their premature calculation with anyone.

Now suppose if someone prematures their lic policy then how is the redemeed amount treated while computing tax? is it added in the total income? in income by other sources section?

@Maverickz @ChottaBheem @Sudarshan61 @andromeda @getready @panchabhut

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1. You are wrong in saying they dont share premature calculation. Go through the policy document it clearly has the calculation.
2. Even before you surrender they will be able to tell you the exact surrender value
3. premature withdrawal taxation. This depends on how long have you paid in the policy and few more conditions. If those are satisfied premature withdrawals are treated as tax free. (Give more details like when did you purchased the policy, yearly premium and assured death benefit)

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Sudarshan61 wrote:

1. You are wrong in saying they dont share premature calculation. Go through the policy document it clearly has the calculation.
2. Even before you surrender they will be able to tell you the exact surrender value
3. premature withdrawal taxation. This depends on how long have you paid in the policy and few more conditions. If those are satisfied premature withdrawals are treated as tax free. (Give more details like when did you purchased the policy, yearly premium and assured death benefit)

1. 2. they do share the premature amount but not the premature calculation i.e. how that amount was calculated. if u ask them the answer is simple, yeh system calculate karta ha

3. different policies, most were paid for 20 years (for 21-22 year policy term) and some were paid for 11 years atleast out of that 21 year policy term. the rest were paid between 15-18 years. do you need the policy name etc.?
Is there a website which give details about this?

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kukdookoo wrote:

1. 2. they do share the premature amount but not the premature calculation i.e. how that amount was calculated. if u ask them the answer is simple, yeh system calculate karta ha

3. different policies, most were paid for 20 years (for 21-22 year policy term) and some were paid for 11 years atleast out of that 21 year policy term. the rest were paid between 15-18 years. do you need the policy name etc.?
Is there a website which give details about this?

Calculation for surrender is available in detail policy document .which is available on LIC website

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Sudarshan61 wrote:

Calculation for surrender is available in detail policy document .which is available on LIC website

It is not in the policy document. Can you please share the same from their website?

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Maverickz wrote:

Details about taxability of amounts received on surrender / maturity of insurance policies is very well explained the link shared as under:

https://economictimes.indiatimes.com/what-you-m...

Sir is there any official article on the IT site for the same?

For example policy start in 2010. no. of installments 25.
premium amount- 12009
benefits- 200000 sum assured+bonus
total premium paid- 120090
premium as a % of sum assured, from the link that you posted- 6.0045%
surrender value- 116000
loss- 4090
so that means no tax on this? means that it will not be added in income?

instead of premium as a % of sum assured, dont you think that acutal gain/loss on premium paid should be considered?

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kukdookoo wrote:

Sir is there any official article on the IT site for the same?

For example policy start in 2010. no. of installments 25.
premium amount- 12009
benefits- 200000 sum assured+bonus
total premium paid- 120090
premium as a % of sum assured, from the link that you posted- 6.0045%
surrender value- 116000
loss- 4090
so that means no tax on this? means that it will not be added in income?

instead of premium as a % of sum assured, dont you think that acutal gain/loss on premium paid should be considered?

Official section is 10(10D) of the Income Tax Act… In the given example, no tax liability as computed by you… Bro… You can give these suggestions to our Finance Ministry or any FM influencer so that they consider it in the next budget proposal !!! I do not have this privilege..

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I also booked loss on lic,

Total premium paid 20*7=1.4 lakh
Amount i received 95k

Loss 55k. Now can i adjust it againt my short team capital gain

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kukdookoo wrote:

It is not in the policy document. Can you please share the same from their website?

Provide policy name

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titamazon wrote:

I also booked loss on lic,

Total premium paid 20*7=1.4 lakh
Amount i received 95k

Loss 55k. Now can i adjust it againt my short team capital gain

Which team ?

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Maverickz wrote:

Official section is 10(10D) of the Income Tax Act… In the given example, no tax liability as computed by you… Bro… You can give these suggestions to our Finance Ministry or any FM influencer so that they consider it in the next budget proposal !!! I do not have this privilege..

paji under section 10(10d) where is it mentioned that the relief is provided to surrender/premature policies also?

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Sudarshan61 wrote:

Provide policy name

please give some time. let the point whether premature/surrender policies are covered under it or not get cleared first. i am not able to find point which says that premature/surrender policies which also get exemption.

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titamazon wrote:

I also booked loss on lic,

Total premium paid 20*7=1.4 lakh
Amount i received 95k

Loss 55k. Now can i adjust it againt my short team capital gain

Now can i adjust it againt my short team capital gain
yes

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kukdookoo wrote:

paji under section 10(10d) where is it mentioned that the relief is provided to surrender/premature policies also?

The law clearly says “any sum received under a life insurance policy” which means to interpret whether the amount is received on premature or on maturity, both would be covered.

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Maverickz wrote:

The law clearly says “any sum received under a life insurance policy” which means to interpret whether the amount is received on premature or on maturity, both would be covered.

The law clearly says “any sum received under a life insurance policy” which means to interpret whether the amount is received on premature or on maturity, both would be covered.
paji what if the concerned official in case of scrutiny interprets it otherwise?

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kukdookoo wrote:

The law clearly says “any sum received under a life insurance policy” which means to interpret whether the amount is received on premature or on maturity, both would be covered.
paji what if the concerned official in case of scrutiny interprets it otherwise?

In that case, Hire a legal advisor or a CA to represent your case

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@Maverickz @Sudarshan61

please check calculation https://imgur.com/a/0...vM

only one policy was started after 01.04.2012 but its premium to sum assured % is also less than 10% which satisfies below conditions shared by @Maverickz sir

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 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.

For policies issued on or after 1.4.2012, the above mentioned limit of 20% has been changed to 10%.

all good?

one more thing from same post

https://economictimes.indiatimes.com/tdmc/your-...

_Is TDS applicable to payment of life insurance policy proceeds?

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). Further, even if these proceeds are taxable as per section 10(10D) but do not exceed Rs 100,000, then also no TDS is to be deducted by the insurer when making the payment to the insured._

Some amounts were more than 1 lac but no tds was deducted so this means that they were exempted?

All these policies were surrendered at a loss

- are these losses covered under short/long term capital losses?

- can these be used to set off capital gains for next years? how?

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@Sudarshan61
sir policy name does not tell about tax related benefits. i read each policy document twice but could not find surrender related calculation point.

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kukdookoo wrote:

@Sudarshan61
sir policy name does not tell about tax related benefits. i read each policy document twice but could not find surrender related calculation point.

Just give one of your policy name…will share calculation document…recently I have also surrendered one of the policy…

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In the cases shared, the entire amount is exempt as it meets the criteria as laid down under 10(10D).. Any income received from insurance policy is termed as income from other sources and cannot be used to setoff Capital Gains

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Maverickz wrote:

In the cases shared, the entire amount is exempt as it meets the criteria as laid down under 10(10D).. Any income received from insurance policy is termed as income from other sources and cannot be used to setoff Capital Gains

can it be used to set off net income/profits if the received surrender value is a loss?

example- net income of an assesse after all deductions and everything- Rs. 100
Amount invested in lic- Rs. 100, surrender value- Rs. 50. So, a loss of Rs. 50
Can this loss be deducted from the net income?

If not then will this surrender value of rs. 50 be added to the net income? @Maverickz

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kukdookoo wrote:

can it be used to set off net income/profits if the received surrender value is a loss?

example- net income of an assesse after all deductions and everything- Rs. 100
Amount invested in lic- Rs. 100, surrender value- Rs. 50. So, a loss of Rs. 50
Can this loss be deducted from the net income?

If not then will this surrender value of rs. 50 be added to the net income? @Maverickz

You cannot setoff the loss on surrender of insurance policy anywhere in the Income Tax return. Since in your case, there is a loss on surrender, you will not have to report such loss anywhere, only the gains are to be reported.

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Maverickz wrote:

You cannot setoff the loss on surrender of insurance policy anywhere in the Income Tax return. Since in your case, there is a loss on surrender, you will not have to report such loss anywhere, only the gains are to be reported.

thanku.
continuing with the above example
example- net income of an assesse after all deductions and everything- Rs. 100
Amount invested in lic- Rs. 100, surrender value- Rs. 150. So, a profit of Rs. 50

now this profit value would have been added in the net income?

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kukdookoo wrote:

thanku.
continuing with the above example
example- net income of an assesse after all deductions and everything- Rs. 100
Amount invested in lic- Rs. 100, surrender value- Rs. 150. So, a profit of Rs. 50

now this profit value would have been added in the net income?

Yes

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