Regarding purchase of annuity plan from lic

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 October 2014 Respected All,
I want to purchase one annuity plan from LIC the purchase value is Rs-10,00,000/-
but this Money i can borrow from my friend by making contract on stamp paper that i will refund it to him in 15 years and second thing
is that he will give me a cheque in the name of Life insurance corporation of india of rs-10,00,000/- + service tax of 12.36%, the service tax amount of 12.36% i will refund him immediately by a bearear cheque so please tell me is this transaction is safe by the Income tax Law or i have to get it by some other way please help me out
Thank You.

Querist : Anonymous

Querist : Anonymous (Querist)

15 November 2014 is there no one to answer my query?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2025 Here's a detailed take on your proposed transaction from an Income Tax law perspective and some general advice:

Your Proposal Summary:
You want to buy an LIC annuity plan worth ₹10L
The ₹10L is borrowed from a friend via a stamped contract, repayable in 15 years.
Your friend will pay LIC directly by cheque for ₹10L + 12.36% service tax.
You will repay the service tax amount immediately to your friend by bearer cheque.
Key Points and Concerns:
1. Source of Funds & Documentation

Borrowing from a friend with a formal agreement on stamp paper is generally acceptable if properly documented.
Ensure the loan agreement clearly specifies the amount, interest (if any), repayment terms, and signature of both parties.
The loan transaction should be genuine, backed by proper documentation, and the amount should be traceable in bank accounts.
2. Payment to LIC

LIC typically accepts payment via cheque or demand draft from the purchaser or on their behalf.
It is okay if the cheque comes from your friend's account provided the annuity is ultimately in your name.
3. Service Tax Payment

Service tax on insurance premium is generally paid by the insurance company and included in the premium.
If your friend pays ₹10L + 12.36% service tax to LIC, clarify if service tax is separately charged or included.
If you repay service tax amount separately to your friend by bearer cheque, it might raise a red flag for tax authorities, as bearer cheques are less transparent.
It's advisable to make payments via banking instruments like account payee cheque, bank transfer, or demand draft for clear paper trail.
4. Income Tax Considerations

Loan amount is not taxable as income, but interest paid may be scrutinized.
The annuity plan benefits will be taxable as per Income Tax rules on annuity.
If the transaction seems designed primarily to evade tax or hide the source of funds, it may attract scrutiny.
5. Best Practice

Take the loan in writing and repay via proper banking channels.
Make all payments to LIC from your account or via a clearly documented transaction.
Avoid using bearer cheques; always use account payee instruments.
Maintain all documents: loan agreement, bank statements, receipts from LIC.
Summary:
Your plan can be safe if fully documented and transparent.
Avoid bearer cheques; use bank transfers or account payee cheques.
Keep a clear paper trail of loan repayment and insurance payments.
Consult a tax professional or chartered accountant before executing to ensure compliance.

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