Accounting Treatment of LIC payments

Venkateswara Rao Sapare (Accountant) (1500 Points)
Replied 24 December 2010

"He is likely to get around Rs. 75000/- on maturity. Kindly advise how to treat the difference of Rs. 30000 (accrued bonus....etc) in his books of accounts. Whether it would be a capital receipt or revenue receipt."

Dear Muralidharan,

It is a Revenue receipt. Taxable as per the Income tax slabs.

Shweta Bansal (CA) (175 Points)
Replied 24 December 2010

On Maturity the person has to pass the given entry in his book:

Bank A/C Dr 75000

To LIC Premium A/C 45000

To Interest on LIC A/C 30000

In this you will treat the amount of Rs 30,000. as interest income (revenue receipt).

However he can claim this as deduction u/s 80C for Rs 30,000.

Hope this has helped you.

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 24 December 2010

Rs. 30000/- cannot be claimed as deduction u/s 80C as it not allowed. Moreover the receipt of Rs. 75000/- is totally exempted (including the diff. of Rs. 30000/-) It is an long term investment and any income earned from this i.e. Rs. 30000/- is treated as Long Term Capital Gains. It cannot be taxable at normal tax rate slabs becasue LTCG has its own rates. Moreover you need not to get it included in total income. Because it is totally exempted.

As per the LTCG Rules, any amount received in case of Shares, Life Insurance, Mutual Fund Units, etc) after a period of 12 months is treated as Long Term Capital Gain and any income earned from these is totally EXEMPTED

You have to pass the following entries:

Bank A/c Dr. 75000/-

To LIC Premium / Investment A/c 45000/-

To LIC Accrued Bonus / Int. on LIC A/c 30000/-

Moreover while calculating the total income Rs. 30000/- is not to be included as it is a Long Term Capital Gain and exempted under the head Capital Gains.

2 Like

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 24 December 2010

Originally posted by : Muralidharan
	Dear Members A person earning salary income is maintaining his personal accounts in Tally for the past several years. Maintaining accounts books is not mandatory for him as his annual income does not exceed Rs.3.00 lacs. On his own interest he is maintaining such account book in Tally. He is paying LIC premium every year for four policies. The premium paid to LIC is being debted to "LIC premium account" which is under Investments. In other words he has treated the premium paid by him as his investment. One of his policy is maturing during March 2011 and he is likely to get back the amount from LIC with accrued bonus...etc. He has so far paid Rs.45000/- as premium for the said policy. He is likely to get around Rs.75000/- on maturity. Kindly advise how to treat the difference of Rs.30000 (accrued bonus....etc) in his books of accounts. Whether it would be a capital receipt or revenue receipt. What entry he has to pass in his books of accounts on receipt of the payment from LIC with regards Muralidharan

you have not mentioned that he claimed 80C benefit on these policies or not ,

LIC premium is drawings , not investment,

Under Section 10(10D), any sum received under a Life Insurance policy (not being a Key Man policy) is also exempt from taxation. But it is wise to remember that Pensions received from Annuity plans are not exempted from Income Tax.

you have to make entries as under

its capital receipt and cant be taxed, but you have to neutralize the investment against this policy by making drawings to the extent of 45000.

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 24 December 2010

thanks for clarification

CA Deepesh Ruhela (Keen to Learn) (3271 Points)
Replied 24 December 2010

Under Section 10(10D), any sum received under a Life Insurance policy (not being a Key Man policy) is also exempt from taxation.

You have to pass the following entries:

Bank A/c Dr. 75000/-

To LIC Premium / Investment A/c 45000/-

To LIC Accrued Bonus / Int. on LIC A/c 30000/-

1 Like

RAMA KRISHNA (Sr.Executive - Accts & Preparing for IPCC) (670 Points)
Replied 25 December 2010

As Per my knowledge,

Either the entire premium (Rs,45,000/-) debited to capital accont or showing it as investment both acceptable accounting treatments,

The amount that you get when an insurance policy matures is completely tax free.

the excess amount credited (Rs.30,000/-) to profit & loss acount ,then deduct from net profit while arriving taxable income.

If am i wrong, correct me anyone.

Nirav (Bcom, LLB, CA Final) (107 Points)
Replied 29 December 2010

Under Section 10(10D), any sum received under a Life Insurance policy is exempt from tax. So You have to pass the following entries:

Bank A/c Dr. 75000/-

To LIC Premium / Investment A/c 45000/-

To LIC Accrued Bonus / Int. on LIC A/c 30000/- (This should be as per the detail account presented by LIC with the check n accordingly credited.)

1 Like

Jaideep (Service) (1368 Points)
Replied 30 December 2010

thanks for the useful info...

Dhawal Mohnot (Practicing) (449 Points)
Replied 30 December 2010

agree with Mr.Sharma

SVSHAH (CA Final) (122 Points)
Replied 23 September 2011

What if the LIC premium paid is also claimed under sec. 80C and shown as Investment, this will reduce the decrease in Capital to the extent of Premium paid, but what will be the scenario on Policy maturity.

Dhawal Mohnot (Practicing) (449 Points)
Replied 03 October 2011

at the time of policy maturity, net off the amount received against investment account (crediting investment account) if the amount is more than investment account balance, the excess amount should be credited to the capital account directly.