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Is it insurance claim received taxable

ch durgaprasad (Assistant officer in ultratech cement ltd) (105 Points)

08 July 2016

sir,
My client has received fro the third party insurance amount on the accident which causes to death of father. the insurance company has deducted TDS and paid the sum to the Legal heirs.
Now my question is the amount received is taxable or exempted under which section. for claiming refund of TDS.

Thanking you

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10 Replies

CA VIRAL SANGHVI (Finance head) (681 Points)
Replied 09 July 2016

Hiii,

It is compansation of damages i.e. death and consider as capital receipt.It is not taxable.

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ch durgaprasad (Assistant officer in ultratech cement ltd) (105 Points)
Replied 09 July 2016

sir, under which section it is exempted.

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 10 July 2016

Any sum received can be taxed under the Income-tax Act, 1961 (the Act), if the same is covered within the meaning of the word "income" . Technically speaking, the life insurance claim received by the family cannot be said to be income in the hands of the recipient . Further, this payment is also not being made to compensate for the loss of a particular source of income, but is being made for the loss of source itself. Even otherwise, the Act contains a specific provision, i.e., section 10(10D) which specifies that any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is not to be included within the meaning of "income" . Therefore, the life insurance claim receipts are not taxable in the hands of the family of the deceased.

ch durgaprasad (Assistant officer in ultratech cement ltd) (105 Points)
Replied 11 July 2016

10(10d) relates to life insurance policy, how it can applicable in the case of 3rd party vehicle insurance receipts. please clarify

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 12 July 2016

Please don't consider the section 10(10D) (just referred for example). Here the point - claim received is capital receipt, so it will not be includible in income of the representative assesee.

Please refer the below mentioned case laws, it may help

Vinod Kumar. vs Income-Tax Officer32 ITD 254 , ITAT Chandigarh

CIT v. Chiranji Lal Multanimal Rai Bahadur (P) Ltd

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ch durgaprasad (Assistant officer in ultratech cement ltd) (105 Points)
Replied 13 July 2016

OK I agree sir but how could I get the TDS amount on such payment deducted by insurance company. without showing this as exempted income how can we get the refund of TDS please clarify

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 14 July 2016

If we are considering the claim receipt as capital income, then it will not form part of our total income. In that case, income will be nil or less as the case may be. Then excess TDS can be claimed from the dept.

ch durgaprasad (Assistant officer in ultratech cement ltd) (105 Points)
Replied 14 July 2016

I think we are saying that not showing this income in the return and claim for that TDS portion. Am I right sir.
if department may send the notice for this amount now a days 26AS portion already updated in the return na.
so, how could we prepare for the notice?

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 15 July 2016

We are having background case studies & other supporting documents.

In many scenarios, we will claim TDS refund since our income will not be taxable but TDS will be deducted. In all those cases, notice will not be served to the assessee.

Even in our case, may be chances are there that we will receive notice. In that case, we need to explain the AO regarding our assumption & provide supportings in order to substantiate the same.

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