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TAXABILITY ON MATURITY OF LIC?

saurabh sawlani (2166 Points)

06 June 2018

TAXABILITY ON MATURITY OF LIC? IT'S TAXABLE OR EXEMPT?

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A B Kundu (Professional) (1422 Points)
Replied 06 June 2018

1) 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 is to be received over and above the assured amount.

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

3) In case the insured suffers from severe disability or disease as specified by the Income Tax Act and rules and his/her policy was issued on or after 1.4.2013, then for them the limit of 10% will be increased to 15%. For this purpose, disability has to be one of those specified in section 80U (like autism, mental retardation) and disease has to be one of those specified in section 80DDB read with Rule 11DD of income tax rules such as blindness.

4) In case the premium payable in any year exceeds the prescribed percentage i.e. 10%, 15% or 20% of actual sum assured, as described in the preceding paragraphs, then the whole proceeds from the policy would get taxed in the year of receipt.

However, in case of death of the insured, where his nominees receive the policy proceeds the same shall be tax free in the hands of the nominee(s) even if premium paid in any year crossed the prescribed percentage of sum assured.

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