Maturity proceed of lic

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Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2017 By applying provisions of the income tax act, maturity proceed of life insurance policy is taxable, my question is whether premium paid on policy will be excluded from maturity proceed for computing taxable income?

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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14 September 2017 No. There are no provisions to exclude premium paid from maturity proceeds

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2017 Thank you sir for your reply but I had read a circular No. 7/2003, dated 5-9-2003 of the income tax act as per which premium paid will be excluded from maturity proceed for computing taxable income... Please give me guidance with respect to that...

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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03 August 2024 ### Tax Treatment of LIC Maturity Proceeds

**1. Taxation of LIC Maturity Proceeds:**
- Under **Section 10(10D)** of the Income Tax Act, 1961, the maturity proceeds of a life insurance policy are generally exempt from tax, provided certain conditions are met.

**2. Conditions for Exemption:**
- The premium paid should not exceed 10% of the sum assured for policies issued on or after April 1, 2012, or 20% for policies issued before April 1, 2012.
- For policies issued on or after April 1, 2012, the sum assured should be at least 5 times the annual premium.

**3. If the Policy Premium Exceeds the Limit:**
- If the premium paid exceeds the prescribed limit, the maturity proceeds are taxable.
- The taxable amount is calculated as the difference between the total maturity proceeds and the total premiums paid (including any premiums paid in earlier years).

### **Circular No. 7/2003:**
- The circular clarifies that for the purpose of taxation, if the policy does not meet the exemption conditions (i.e., the premium exceeds the prescribed limit), the maturity proceeds are taxable.
- However, the circular specifies that **only the amount received in excess of the premiums paid is taxable**. This means the premiums paid are not taxed, and only the gain (i.e., the amount received minus the total premiums paid) is subject to tax.

### **Example Calculation:**

**Let's break this down with an example:**

- **Premium Paid:** ₹1,00,000
- **Maturity Proceeds Received:** ₹1,50,000
- **Total Premiums Paid:** ₹1,00,000

**Taxable Amount:**

- **Taxable Income:** ₹1,50,000 (maturity proceeds) - ₹1,00,000 (premiums paid) = ₹50,000

So, in this case, the taxable amount is ₹50,000, which is the difference between the maturity proceeds and the total premiums paid.

### **Summary:**

- The maturity proceeds of a life insurance policy are generally exempt under Section 10(10D) if conditions are met.
- If the conditions are not met and the premium exceeds the limits, the maturity proceeds are taxable.
- According to Circular No. 7/2003, the premium paid on the policy is excluded from the taxable amount. Only the excess amount received over the total premiums paid is subject to tax.

For the most accurate and current guidance, it is advisable to consult with a tax professional or refer to the latest updates from the Income Tax Department.

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