Taxable part of immediate annuity

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With an immediate annuity, not all of your income may be taxable. You can determine the non-taxable portion by calculating an exclusion ratio, which is your investment divided by the expected return. This ratio helps you find out how much of each annuity payment is tax-free and how much is taxable. Your annuity provider should offer the necessary information to help with these calculations.

Shrawan Kumar

Shrawan Kumar (Querist)
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30 July 2025 I know that annuity income is taxable. I want to know in case of immediate annuity , is part of it non taxable due to exclusion ratio concept? If yes, how to calculate it ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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31 July 2025 Exclusion Ratio = Your investment divided by Expected Return
This ratio is typically expressed as a percentage or a decimal.

Determine the Non-Taxable Portion of Each Payment:
Non-Taxable Portion = Annuity Payment Received × Exclusion Ratio

Determine the Taxable Portion of Each Payment:
Taxable Portion = Annuity Payment Received - Non-Taxable Portion

Your annuity provider (the insurance company) should typically provide you with the necessary information for tax purposes, including details related to the exclusion ratio, if applicable.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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25 September 2025 Good luck...

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