Surrender value taxable or not?
This query is : Resolved
26 March 2012
I have two lic policies out of which one is money back plan and the other is market linked plan. I want to know if surrender those policies then is the surrender value taxable?
I also have three ULIPS. whether the surrender value of ULIPS is taxable or not?
I also have three ULIPS. whether the surrender value of ULIPS is taxable or not?
26 March 2012
No it is not taxable, Surrender value is exempt u/s 10(10D).
27 March 2012
Sir but when I inquired in the customer care centre of one of the ulips they said that if you terminate the policy in between then the amount received will be taxable. the amount that you get after maturity is tax free.
I want to terminate the policy in between but I am confused whether the proceeds will be taxable or not? Please explain.
I want to terminate the policy in between but I am confused whether the proceeds will be taxable or not? Please explain.
26 July 2025
You're right to ask — the **taxability of surrender value** of insurance policies depends on **Section 10(10D)** of the Income Tax Act, 1961, and **the type of policy and timing of surrender**.
---
### ✅ **1. GENERAL RULE (Section 10(10D)):**
* **Any amount received under a life insurance policy**, including **surrender value**, is **exempt from tax**, **if**:
* The **premium paid in any year** is **not more than 10%** of the **sum assured** (for policies issued after 1 April 2012; it's 20% for older policies issued before).
* The policy is **not terminated prematurely** under specific conditions.
* It’s **not a Keyman Insurance Policy**.
---
### 📌 **Case-wise Explanation:**
#### **A. Traditional Plans (like Money Back):**
* **Surrender value is tax-free**, **if** conditions of Sec 10(10D) are satisfied.
* If **premium > 10% of sum assured**, the exemption under 10(10D) may **not** be available.
#### **B. ULIPs (Unit Linked Insurance Plans):**
##### 👉 For policies **issued before 1 Feb 2021**:
* **Surrender value is exempt**, **if Sec 10(10D)** conditions are met (especially the 10% rule).
##### 👉 For policies **issued on or after 1 Feb 2021**:
* If **annual premium > ₹2.5 lakhs**, the **maturity or surrender proceeds become taxable** as **capital gains** under Section 45(1B).
* If **premium ≤ ₹2.5 lakhs**, proceeds (including surrender) are **exempt** under 10(10D).
---
### ⚠️ **So, in your case:**
You mentioned:
* One money back plan ✅ — likely exempt under 10(10D)
* One market-linked plan (probably a ULIP) ❗
* Three ULIPs ❗
If:
* **Total annual premium of ULIPs > ₹2.5 lakh**, and
* Policies issued **on or after 1 Feb 2021**,
then **surrender value will be taxable as capital gains**.
If issued **before 1 Feb 2021**, or premiums are within the limit, then **exempt**.
---
### 🔍 **Recommendation:**
1. Check **issue date** of ULIPs.
2. Check **annual premium amount**.
3. Refer to Section 10(10D) and **Budget 2021 amendments**.
---
### ✅ **1. GENERAL RULE (Section 10(10D)):**
* **Any amount received under a life insurance policy**, including **surrender value**, is **exempt from tax**, **if**:
* The **premium paid in any year** is **not more than 10%** of the **sum assured** (for policies issued after 1 April 2012; it's 20% for older policies issued before).
* The policy is **not terminated prematurely** under specific conditions.
* It’s **not a Keyman Insurance Policy**.
---
### 📌 **Case-wise Explanation:**
#### **A. Traditional Plans (like Money Back):**
* **Surrender value is tax-free**, **if** conditions of Sec 10(10D) are satisfied.
* If **premium > 10% of sum assured**, the exemption under 10(10D) may **not** be available.
#### **B. ULIPs (Unit Linked Insurance Plans):**
##### 👉 For policies **issued before 1 Feb 2021**:
* **Surrender value is exempt**, **if Sec 10(10D)** conditions are met (especially the 10% rule).
##### 👉 For policies **issued on or after 1 Feb 2021**:
* If **annual premium > ₹2.5 lakhs**, the **maturity or surrender proceeds become taxable** as **capital gains** under Section 45(1B).
* If **premium ≤ ₹2.5 lakhs**, proceeds (including surrender) are **exempt** under 10(10D).
---
### ⚠️ **So, in your case:**
You mentioned:
* One money back plan ✅ — likely exempt under 10(10D)
* One market-linked plan (probably a ULIP) ❗
* Three ULIPs ❗
If:
* **Total annual premium of ULIPs > ₹2.5 lakh**, and
* Policies issued **on or after 1 Feb 2021**,
then **surrender value will be taxable as capital gains**.
If issued **before 1 Feb 2021**, or premiums are within the limit, then **exempt**.
---
### 🔍 **Recommendation:**
1. Check **issue date** of ULIPs.
2. Check **annual premium amount**.
3. Refer to Section 10(10D) and **Budget 2021 amendments**.
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