Certain doubt - income tax

Sir, one of my client had taken a Jeevan Anand (with profits)(with accident benefit) policy during the year 2005 with the maturity year of 2020 ie. 16 years term. The policy value was of Rs. 8,00,000 now he has received of Rs. 13,93,600 including bonus of Rs.5,93,600. Now my question is whether entire amount of Rs. 13,93,600 is exempt or Rs.5,93,600 only bonus is exempt u/s.10, kindly clarify
Replies (3)
Quick Summary
This discussion addresses the taxability of a life insurance policy maturity amount received by a client. The policy, taken out in 2005, matured in 2020, with the client receiving Rs. 13,93,600. The core question is whether the entire amount or just the bonus is exempt under Section 10(10D) of the Income-tax Act. While generally exempt, specific conditions regarding premium payments for policies issued between April 1, 2003, and March 31, 2012, can affect full exemption. If these conditions are not met, the entire amount might be taxable, though premiums paid could potentially be claimed as deductions.

As per section 10(10D) of the Income-tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt. However, the exemption will not be available if:

any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or

(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Thus, while the entire amount of INR 13.93 lakhs should be exempt unless it falls within the exception mentioned above. 

Sir. it is falling under the exception period that is between from 01-04-2003 to 31-03-2012, then kindly advise as to how to proceed sir.

In that case, first check whether the condition of 10% / 20%, as the case may be, is also satisfied. if the answer is yes, then the entire amount could be taxed. Having said this, you could consider claiming deduction of the premium paid since section 10(10D) debars from treating the entire amount as exempt. As the income will be taxed under Capital Gains / Income from Other sources, you can consider claiming expenses (i.e. premium paid) as deductible. A detailed study in this regard is needed 

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