Tax on surrender of pension plan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2012 Hi,

I had a UNIT LINKED PENSION policy with ICICI Prudential. After paying 7 annual premiums of Rs. 10,000/- each. On 8th year (2012) I surrendered the above policy and the surrendered value, that I received, was Rs. 1,00,000/-. Following which I have few queries if anyone could help.

1) Do I need to pay income tax on the above surrender value?

2) If yes then, should the tax "Income from other sources" be paid on the whole of Rs. 1,00,000/- or bonus of Rs. 30,000/-?

PS: I have showed an amount of Rs. 10,000/- on the first year only as part of 80CCC IT deductions.

Querist : Anonymous

Querist : Anonymous (Querist)

02 March 2012 Can an Expert help me with this query?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Here’s a breakdown of your tax liability on surrendering a **Unit Linked Pension Plan (ULIP)**:

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### 1) Is surrender value taxable?

* The surrender amount received from a **ULIP pension plan** is generally **taxable under the head “Income from Other Sources”**.
* This is because you have already claimed deductions under Section 80CCC for premiums paid.
* The taxable portion is the **gain or “bonus” earned** (i.e., surrender value minus total premiums paid).

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### 2) How to compute taxable income?

* Total premiums paid: 7 years × Rs. 10,000 = Rs. 70,000
* Surrender value received: Rs. 1,00,000
* Gain (Bonus) = Rs. 1,00,000 - Rs. 70,000 = Rs. 30,000

**You need to pay tax only on the gain of Rs. 30,000**, not the entire Rs. 1,00,000.

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### 3) Tax treatment:

* The Rs. 30,000 will be added to your **Income from Other Sources** and taxed at your applicable slab rate.
* The Rs. 70,000 (original premiums) is not taxable since you claimed deduction earlier.

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### Summary:

| Component | Taxability |
| ------------------------------ | --------------------------------------------------- |
| Premiums paid (Rs. 70,000) | Not taxable (already claimed deduction under 80CCC) |
| Surrender value (Rs. 1,00,000) | Total amount received |
| Taxable gain (Rs. 30,000) | Taxable under “Income from Other Sources” |

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If you want, I can help you with the exact tax calculation based on your income slab. Would you like that?

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