24 December 2010 Any insurance proceeds shall not be charged to tax in these cases:

If the such proceeds is In Kind i.e. if the insurance company has replaced your assets and the FMV of such asset is less than or equal to it's Value.

But if the assets replaced carry more than it's Value (normally in case of reinstated insurance) then exceeding value shall be charged to Capital Gains in the year the assets are received.

In case of Money Consideration:

It shall not be charged to Assets if you buy the assets in the same year as the

Assets Block will appear as below:

Opening Balance XXXXX
(1) Add: Assets Purchased XXX
(By insurance consideration)
(2) Less: Assets Sold XXX
(The WDV of assets destroyed)

Balance XXXX

But if the consideration is not used to buy the assets then it shall be charged to tax as income of the year in which such consideration recieved.

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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24 December 2010 The payment of insurance claim in the case of destruction of property is not chargeable to tax.

Querist : Anonymous

Querist : Anonymous (Querist)

26 December 2010 I need information in case of LIC Plans!!
as in that case some policies proceeds are taxable and someother exempt???

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 In India, the tax treatment of LIC (Life Insurance Corporation) policy proceeds depends on the type of policy and the circumstances under which the proceeds are received. Here's a breakdown of how different LIC policies are treated for tax purposes:

### **1. **Tax Exemption Under Section 10(10D)**

**Policies Covered:**
- **Life Insurance Policies**: Proceeds from life insurance policies, including LIC plans, are generally exempt from tax under Section 10(10D) of the Income Tax Act, provided certain conditions are met.

**Conditions for Exemption:**
- The policy must be issued on or after April 1, 2003.
- The premium paid should not exceed 10% of the sum assured (for policies issued on or after April 1, 2012, this limit is 20% of the sum assured).
- The policy must be for the life of the insured.

**Examples of Tax Exempt Proceeds:**
- **Maturity Benefits**: If you receive maturity benefits from a policy meeting the conditions above, these proceeds are exempt from tax.
- **Death Benefits**: The sum received as death benefits by the nominee is also exempt from tax.

### **2. **Taxability of Policy Proceeds Under Specific Conditions**

**Policies Not Covered by Exemption:**
- **Policies with Premiums Exceeding Limits**: If the premium paid is more than 10% (or 20% in the case of policies issued after April 1, 2012) of the sum assured, the excess premium is not eligible for tax exemption.
- **Policies with Higher Premiums**: For policies where premiums exceed the specified limit, the maturity proceeds will be partially taxable.

**Tax Treatment:**
- **Income Tax on Excess Premium**: If the premiums paid exceed the prescribed limit, the maturity proceeds will be taxable as income under the head “Income from Other Sources”.

### **3. **Tax Benefits on Premium Paid**

**Section 80C Deductions:**
- Premiums paid on LIC policies are eligible for tax deduction under Section 80C of the Income Tax Act, subject to the overall limit of ₹1.5 lakh per annum. This applies to premiums paid for policies where the sum assured is at least 10 times the annual premium (20 times for policies issued after April 1, 2012).

### **4. **ULIPs (Unit Linked Insurance Plans)**

**Tax Treatment:**
- **Tax Exemption**: Similar to LIC policies, ULIPs are eligible for tax exemption under Section 10(10D) if they meet the criteria (premium not exceeding 10%/20% of the sum assured, etc.).
- **Tax Benefits on Premiums**: Premiums paid on ULIPs are also eligible for deduction under Section 80C, subject to the ₹1.5 lakh limit.

### **5. **Taxable Proceeds in Case of Surrender**

**Surrender Value:**
- If an LIC policy is surrendered before maturity and the premiums paid exceed the 10%/20% limit, the amount received over the premiums paid will be taxable as income.

### **Key Points to Remember:**

1. Ensure that the premium paid on the policy does not exceed the limit set by the Income Tax Act to avail of tax exemptions on proceeds.
2. Maintain proper documentation of premiums paid and policy details to substantiate claims of tax exemptions and deductions.
3. Check the specific terms of your policy and consult with a tax advisor for accurate tax treatment based on your individual circumstances.

By understanding these points, you can effectively manage the tax implications of your LIC policy proceeds.

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